In India, motor insurance is compulsory by law. In addition to this, car insurance is also vital for personal safety and increasing cost of claims. However, car insurance can be quite pricey and the large premiums can burn quite a hole in your pocket. By understanding the factors that affect car insurance premium, you can choose the best policy for your needs that not only protects your finances but also ensures the safety for your precious asset.
Here are a few factors by which customer can manage the premium of their motor policies as per their requirement.
Type of Car Insurance and Add-on Covers
The customer has to decide the type of car insurance he wants to opt for. There are two basic types of car insurance covers which include:
Third Party Liability only- This is compulsory by law
Package Policy- Own Damage + Third Party Liability + Personal Accident
Also under of package policy, the customer can opt for add-on covers (Additional coverage provides added financial protection) in lieu of extra premium.
If the insured has installed accessories, then the Insurance of Accessories can be opted for by paying additional premium.
Electrical/Electronic items that are additionally fitted (not included in the manufacturer’s selling price of the vehicle) can be insured at an additional premium of 4% on the value of such fittings.
Use of CNG/LPG fuel
Any vehicle fitted with an RTA approved CNG /LPG kit, can be insured separately at an additional premium @ 4% on the value of the kit.
Based on the IDV
IDV means Insured’s Declared Value. It is the current market value of your vehicle. The IDV is fixed on the basis of the manufacturer’s listed selling price of the particular model at the commencement of the policy or renewal and adjusted as per the depreciation in the tariff.
For vehicle aged over 5 years, the IDV will be the value agreed between insurance company and insured
The Insured’s Declared Value (IDV) of the vehicle will be the ‘SUM INSURED’ for the purpose of tariff calculation and it will be fixed at the commencement of each policy period for each insured vehicle.
|VEHICLE||% OF DEPRECIATION|
|Not exceeding 6 months||5%|
|Exceeding 6 months but not exceeding 1 year||15%|
|Exceeding 1 year but not exceeding 2 years||20%|
|Exceeding 2 years but not exceeding 3 years||30%|
|Exceeding 3 years but not exceeding 4 years||40%|
|Exceeding 4 years but not exceeding 5 years||50%|
Deductibles and Voluntary Excess
Voluntary excess is an option that allows you to bear a certain amount of loss from every claim. For this option, you are eligible for a discount on Own Damage Premium (ODP).
Deductibles play a major role in premiums. If a customer chooses higher deductible, it means a lower premium. On the other hand, if insured chooses a lower deductible, it means a higher premium.
|INR 2500||20% on the OD Premium of the vehicle, subject to a maximum of INR 750/-|
|INR 5000||25% on the OD Premium of the vehicle, subject to a maximum of INR 1500/-|
|INR 7500||30% on the OD Premium of the vehicle, subject to a maximum of INR 2000/-|
|INR 15000||35% on the OD Premium of the vehicle, subject to a maximum of INR 2500/-|
No Claim Bonus (NCB)
If insured maintains a claim-free record, he accumulates the No Claim Bonus. This then translates into discount on the Own Damage Premium. An insured becomes entitled to NCB only at the renewal of a policy after the expiry of the full duration of 12 months.
|ALL TYPES OF VEHICLES||% OF DISCOUNT ON OWN DAMAGE PREMIUM|
|No claim made or pending during the preceding full year of insurance||20%|
|No claim made or pending during the preceding 2 consecutive years of insurance||25%|
|No claim made or pending during the preceding 3 consecutive years of insurance||35%|
|No claim made or pending during the preceding 4 consecutive years of insurance||45%|
|No claim made or pending during the preceding 5 consecutive years of insurance||50%|
If the insured installs anti-theft devices, approved by the Automobile Research Association of India (ARAI), he or she gets additional discount on the premium. The amount of discount is usually 2.5% of the premium to a maximum of INR 500.
The price of motor insurance is constantly on the rise. By understanding the different factors that affect car insurance premiums, you can reduce the sting of the high prices and find the best car insurance policy for your needs.
This article was authored by Namrata Porwal, Health Administration Team (HAT), Bajaj Allianz General Insurance Co. Ltd.