If you are a car owner, you know that one of the most important documents you are required to possess apart from your driver’s license is a valid car insurance policy. Whe-ther you’re looking to insure a new car or renew your existing policy, you must know what car insurance comprises and the factors that affect it, to help you understand how you can save money on the premium.
Car Insurance ComponentsÂ
Car insurance is a combination of ‘Own Damage’ and ‘Third Party Liability’ coverage. Own Damage part of the insurance covers any damage/ theft (total or partial) of the car, whereas Third Party Liability covers any damage/ injury caused to a person/ property by the insured car.
The primary factors that determine your car insurance premium are the make/ model of the car, the age of the car and the city of registration.
Insured’s Declared Value (IDV)
The make/ model of the car and the age together form the basis for arriving at the IDV of the car. All vehicles are insured at a fixed IDV. This is calculated based on the car’s ex-showroom price (and the listed price of any electrical and non-electrical accessories) after deducting the depreciation for every year, as per the schedule provided by the Tariff Advisory Committee (TAC).
Now consider electrical and non-electrical accessories like music systems, air conditioner, fog lights, overhead carrier, seat covers, etc – if you opt for top of the line stuff, insuring them is a must, which again will add to the value of the car and hence it would get added to the cost of your premium. Adding a CNG kit to your car will further increase your premium.
Age
For example, a car that is less that 6 months old will incur a depreciation of only 5 per cent, compared to 30 per cent for a car that is more than 2 years old, but not exceeding 3 years. Apart from usage in calculation of IDV, age is also used to arrive at rate based on loss experience.
Make/ Model
Generally the more expensive the car, the higher will the car insurance premium. So insuring a BMW will definitely be more expensive than insuring a maruti car. However, value of the car is not the only determinant of premium; most of the insurance companies follow ‘Risk Based Pricing’ approach wherein historical loss experience and risk assessment methods are considered for deciding premium rates. Such rates when multiplied by IDV give the final premium.
Location or City
Consider this, the more cars sold in a particular city means more cars on the road. This high level of penetration may result in a higher probability of accidents as compared to a city where there are fewer cars. Apart from density of cars, other factors such as infrastructure, usage of the car or driving habits are expected to have an impact on the accidents. Hence the location is one of the important factors while determining the premium.
Tips on lowering your Car Insurance Premium
There are many provisions under which you can save money on your car insurance premium.
No Claim Bonus
No Claim Bonus (NCB), as the name suggests was created as a form of reward for driving safely and responsibly. The fact that you have not made any claim towards your car insurance is appreciated by the insurance company, which directly translates it into a discount on subsequent renewals of your policy. Therefore, while making a claim always analyse the impact it would have on your NCB.
Discount for Anti-Theft Devices
Further discounts can be availed by installing Automobile Research Association of India (ARAI) approved anti-theft devices in your car. This is another form of reward to the owner of the car for showing responsibility by installing such a device.
Automobile Association Membership Discount
There are a various automobile associations in India, like the Automobile Association of Southern India, the Western India Automobile Association, etc. Since these associations are empowered under the Motor Vehicles Act and Rules, and organise courses on road safety and advanced driving, its members earn the privilege of a discount on their car insurance premiums.
Going Online
One can save money on the car insurance premium by buying the insurance policy online. Some companies offer better rates for customers coming directly online onto the company’s website.
Now that you have understood the factors that affect the premium of car insurance and tips for lowering the premium, make an informed decision in securing your car while saving money on your car insurance.
—The Author is VP, Customer Services-Motor, ICICI Lombard
