How to Choose the Best Car Insurance
Buying vehicle insurance can be quite a riddle in itself unless you are adept at choosing the right cover for your car. If your car is under five years old, you will find persistent auto insurance salesman trying to sell their product.
However, you need to pick the insurance policy carefully after going through fine print as insurance policies are the very definition what is written in this fine print. It is always advisable to compare quotes from multiple insurance providers to see who is offering you the best deal.
Following is a checklist to ensure you get the best out of your car insurance policy:
1. Types of vehicle insurance
Generally plans offered by general insurance providers can be broadly classified under two categories.
- Third party liability insurance – This plan usually covers damage to property, accidental death and injury to a third party. This plan is also mandatory requirement for all vehicles plying on public roads in India.
- Comprehensive Plan – This usually is a preferred options by many as it covers for both ‘own damage’ and legal liability of third party. It also covers theft or damage caused by unforeseen perils like cyclone, earthquake, fire explosion etc.
2. Factors that affect the premium for vehicle insurance
The factors affecting premium calculation are based on the risks that insurance company will be underwriting and these can be can be grouped under four categories:
- Vehicle related risks – Make, fuel type and cubic capacity etc. are few parameters which will determine the premium. Some vehicles like SUV (sports utility vehicle) and commercial vehicles often need higher premium payouts as insurance firms get large number of claims on such vehicles. Generally diesel vehicles have a 10-15 per cent higher premium than petrol cars. At the time of renewal Insured declared value (IDV): At the time of renewal the age of the vehicles and its depreciation predominantly determine the premium that you will pay. For vehicles less than five years old, based on the years of use depreciation is applied to the ex-showroom price to calculate the IDV. For vehicles that are older than five years the market value of the car is taken as IDV.
- Location related risks – This depends on the area of registration. Usually premiums are high if you live in urban area, near highways or densely populated area. If theft is high in the area where you live then the premiums go up.
- Claims history related – If claim for your vehicle insurance then premium can go up following year.
- Driver related – The age and profession of the driver is taken into account. If there are multiple drivers then the premium goes up
3. Tips to reduce the cost of your vehicle insurance
- Voluntary deductibles – Deductibles or excesses are the amounts over and above which a claim is payable by insurance provider. If you are willing to settle petty claims for small damages from your pocket voluntarily, then the cost of premium for vehicle insurance can be reduced approximately by thirty per cent.
- No claim bonus – You can reduce the premium payout by nearly fifty per cent every year, if you don’t claim insurance on your vehicle. Insurance companies give the benefit of no claim bonus as record of your good driving year after year. If you sell your vehicle, this no-claim bonus can be transferred to your new insurance policy for the new vehicle and avail lower premium payout.
- Discount for security features – Few cars come with enhanced security systems which are built-in such as anti-theft alarms and immobilizers. There is low probability of theft of such cars. These cars can be insured for less premium. However, only Automotive Research Association of India (ARAI) approved devices will attract a 2.5 per cent discount on your premium.
4. Add-ons that increase the premium but are useful
- Nil-depreciation insurance – A nil depreciation policy covers for complete claim for rubber and plastic parts. Generally an insurance company will pay only for fifty per cent of value for these parts that are subjected to wear and tear. With most cars having features with plastic and rubber parts it is advisable to go for nil depreciation policy, although the premium would be increased. In case of a claim it can knock a lot off amount in a repair bill.
- Personnel cover – A normal comprehensive insurance cover will include personal accident coverage for the owner of the car. For a small fee, additional users who possess a valid driving license and are using the car can also be covered under the insurance policy. By default, most companies include this cover in their comprehensive insurance policies.
5. Key areas where you may go wrong when choosing a cover
- Value of the car – In order buy a policy with a lower premium payout, often people reduce the IDV or ‘insured declared value’ of the car. But in case of an accident the car will be treated as total write off. Avoid such practice as the benefit for the cost is not adequate. Always try and choose a policy that offers you the maximum IDV on your vehicle, even if it means a slightly higher premium.
- Lapse of Policy – In case of lapse of policy lapse your insurance provider may give a grace period of usually a week. Post this period you run the risk of driving a car without insurance. You will also stand to lose out on benefits like lower premiums or discounts for vehicle insurance.