Buying a car insurance policy is not an option. The law mandates every car to have at least a third-party insurance cover before driving the car on public roads.However, having a comprehensive policy can help you protect yourself against potential financial losses in the future arising out of the theft of your car or an unfortunate accident. Having said that, you also need to ensure that you pay the car insurance premium on time. This can be a financial burden. However, keeping premium as the primary selection factor while choosing a car insurance policy can be counterproductive. Instead, understanding the factors that affect car insurance premiums can help you get optimum benefits and cover for the same premium amount. Here are some factors that affect the calculation of the premium of a car insurance policy.
- Your geographical location – The chances of your car being stolen or meeting with an accident in a metro city as opposed to a small town are higher. Hence, the premium for a car insurance policy in a metro will be more than that in a small town. Also, repairs cost more in certain locations than the others. Similarly, many factors arising out of the place you live and/or work, contribute towards premium calculation.
- YOU [car owner – Another set of factors that affect the car insurance premium is about you – the car owner. Your age, marital status, gender, and other personal factors help the insurer determine the optimum premium rate for you. For example, since women are considered to be safer drivers as compared to men, the premium charged to a female car owner will be lower. Similarly, youngstersare seen as high-risk drivers as opposed to people above 50 years of age. Hence, most insurers will charge youngsters higher premium rates.Also, married people are believed to be safer drivers of cars than unmarried ones. Hence, the premium rates differ.
- Make and model of the car – Every car has a specific life cycle based on its engine and parts. Hence, the make and model of the car are important aspectsin determining the car insurance premium. Also, premium rates are different for petrol, diesel, and CNG cars. Further, every car has a safety rating that defines how prone it is to damage in case there is an accident. Cars with a higher safety rating get a discount on car insurance premiums. Also, the car engine’s cubic capacity is an important factor in determining the premium.
- The car’s age – Along with the make and model of the car, its age is important too. The car’s age is the primary factor in calculating its Insured Declared Value or IDV. As the car ages, the IDV decreases, and so does the premium.
- Type of coverage – The type of coverage is a major factor determining the premium of the policy. A highly comprehensive car insurance policy will have a higher premium than a basic third-party insurance policy. Also, the add-ons or riders chosen by you can affect the premium of the policy.
- Automatic car safety products – Cars that have been fitted with anti-theft devices are likely to receive a discount on the premium amount. The modern automatic care safety products are designed to keep thieves at bay and also help in tracking a stolen car. Hence, insurers feel assured about the car not getting easily stolen and offer a discount. To avail maximum discounts, you can install anti-theft devices approved by the ARAI (Automotive Research Association of India).
- No Claim Bonus (for policy renewals) – If you already hold a car insurance policy and are renewing it, then many insurers will offer a discount on the premium if you haven’t filed a claim during the policy’s tenure. In other words, insurers reward you for being a safe driver!
- Voluntary Deductible – Many insurers offer the option of Voluntary Deductible to allow you to reduce the payment as per your preference. In simpler terms, you voluntarily agree to pay a specific amount when you file a claim and receive a discount on the premium in exchange.
For example, if the premium of your car insurance policy is ₹10000 and you want to reduce it, then you can opt for the voluntary deductible option and decide an amount of ₹5000. This will mean that whenever you file a claim for repairs, you will have to pay ₹5000 to the insurer who will deduct it from the total repair cost. In exchange, you will receive a discount of around ₹1500 on your annual premium.
While this is a good way to reduce your premium, you must choose this option and the amount carefully.
Most insurers offer a car insurance calculator to help you determine the premium that you will have to pay based on the kind of insurance you want for your beloved car. Remember, when you buy an insurance product, you need to balance the cost you incur today and the benefits you can receive in the future carefully. Assess the factors surrounding the use of your car and decide judiciously. Good Luck!