Car Insurance in India

The Indian Motor Vehicles Act of 1986 makes it mandatory for car owners to have a valid third-party car insurance policy for every four-wheeler plying on the roads. While the legal mandate can be a compelling reason for people to buy insurance, the extent of protection and financial net that an insurance policy provides is an equally powerful incentive.

The inundation of the car insurance market with multiple providers can make it difficult to choose one. The ease of comparing car insurance online can help car owners with this problem. But what is the primary aspect of a car insurance policy that people compare? You are right; it is the cost or the premium amount! However, the premium you pay to get your car insured depends on multiple factors. And no, the colour of your car is not one of them.So what affects car insurance premium? Let us find out!

Types of Car Insurance in India

The four-wheeler insurance in India is divided into two major types:

1. Comprehensive Car Insurance: This is a one-stop-shop insurance policy that covers damage to the car, theft of the car, injury and death of owner-driver and any third-party liabilities.
2. Third-party Car Insurance: As the name suggests, it covers i=only third-party liabilities.

12 Things that Affect Your Car Insurance Premium

Let us look at the top twelve factors that affect your car insurance premium:

1. Nature of Coverage: As seen above, comprehensive car insurance is broader than a simple third-party policy. Thus, you shell out more for the comprehensive car insurance premium, simply for the added coverage and benefits. The premium of third-party policies is annually declared by the IRDAI, while the premium for comprehensive insurance is determined by the insurance companies.
2. Insured Declared Value: IDV is the market value of the car at the time of buying the insurance policy. It determines the total sum assured you would receive if your vehicle is stolen. Higher the IDV more will be the premium cost. However, it is crucial that you select correct IDV to avoid over-insuring or under-insuring your car.
3. Make and Model of the Car: The manufacturer and model of your car have a significant impact on the cost of the premium. Luxury cars or expensive cars have higher market value. This pushes up the IDV, thereby increasing the premium. Also, insurance companies determine their premium amount for a brand depending upon the ratio of claims made.
4. Age of the Car: New cars have a higher market value, thus higher IDV and consequently costlier premium. As the value of a car depreciates with time, so does the cost of insurance premium.
5. Purpose of the Car: The nature of the usage of a car – private or commercial, also affect the car insurance premium. A commercial car faces a higher number of risks than a car for private usage. As a result, cars for commercial purposes have higher premium rates.
6. Engine Cubic Capacity: A car with a powerful engine will cost more, and therefore will have higher premium costs. This is more prominent in third-party car insurance, wherein the IRDAI declares the pricing structure based on the cubic capacity of the engine. The higher the cubic capacity, the costlier will be the insurance coverage.
7. Type of Fuel:Similar to the make, model and engine, the fuel type also determines the market price of the vehicle. As the diesel variants are costlier than the petrol variants, the cost of insurance premium will be higher for diesel cars.
8. Anti-theft Devices: Securing your car with state-of-the-art anti-theft or anti-burglary devices that are certified by reputable institutions like the Automotive Research Association of India (ARAI) can allow you to fetch a lower premium. You can also spruce up the security with CCTV cameras in the garage, airbags, etc.
9. Mode of Purchase: The platform of policy purchase – online vs offline car insurance, plays a massive role in determining the premium. Providing car insurance online eliminates a huge chunk of operational and overhead costs for the insurance companies, thereby allowing them to offer lower prices and attractive discounts. Online car insurance policies also do away with the cost of intermediaries. As a result, buying car insurance online is cheaper than buying car insurance offline.
10. Geographical Location: The place where you live and drive the car also affects the car insurance premium. Insurance companies charge a higher premium for cars in metros, accident-prone areas, theft-prone regions, regions prone to natural hazards, etc.
11. Add-ons: Reputable car insurance providers like Tata AIG offer attractive add-ons like Depreciation Cover, Key Replacement Cover, Engine Protection, Tyre Protection, Return to Invoice, Roadside Assistance, etc. These add-ons add layers of protection to your car insurance coverage. However, you have to shell out more money to avail these riders. Thus, higher the number of add-ons opted, higher will be the insurance premium.
12. History of Claim: No Claim Bonus is an attractive discount that the insurance companies pay to the insured as a reward for a claim-free year. Thus, your claim history will determine the amount of premium you pay. If you keep your NCB intact, you will avail discounts ranging from 20% to 50%. However, even a single claim during the policy term can reduce the NCB to zero.

Summing Up…

Although car insurance is compulsory and important, it does not mean you empty your pockets to get the best coverage. Now that you know the factors that affect the cost of your car insurance premium, you can sway them in your favour. Factor them in the next time you buy or renew your policy, and get the most bang for your buck.