India has a huge population that drives four-wheelers and the number has only seen a rise in terms of absolute figures over the years. With this continual purchase of cars, the number of car insurance policy purchases is also on the rise.
The car insurance premium is the key aspect one should look for while buying the said policy at the time of purchase of the car. Therefore, it is important to have a clear understanding of how the premium rates are charged, how it tends to increase every year, and the means by which one can pay lower sums as a premium to the insurer.
Reasons for the Increase in Car Insurance Premium
The Insurance Regulatory and Development Authority is responsible for setting premium rates for mandatory third-party car insurance policies and it is observed that there is a 20% – 30% annual hike in the third-party premium rates. IRDAI regulates the prices of these policies every year based on, inter alia, the total number of claims raised and loss ratios of the insurance companies. The increase in the car insurance premiums for comprehensive policies is determined by the insurance companies on their discretion.
Other Reasons that Can Influence the Increase in Premium
- Your driving record in the previous year and the number of claims raised: The claim history of the policyholder will definitely influence the premium that has to be paid. If the policyholder has a long list of claims against his or her name, then it signals to the insurance company that he or she poses a higher risk to the company, influencing them to charge a higher premium. Just like what happened with Ajit when he approached his insurance company to renew his car insurance premium, he was charged with a higher premium. The reason being, he earlier filed a lot of claims hence his profile is considered to be risky for the future as well. Thus, he now has to pay a higher premium to avail of car insurance.
- Location of the insured: If the geographical location of the car owner is in a risk-prone zone, then the insurance premium will be high. If the car owner registers the car in Zone A, i.e. in one of the 8 cities of Zone A, namely, New Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, then the premium will be high as opposed to a car registered in Zone B i.e. rest of India.
- IDV: The insured declared value is an important determinant of not just the price that the car will be sold at in the market at a given point of time, but also to determine the rate of premium. The lesser the age of the car, the higher the IDV would be, resulting in a higher premium. Also, the engine capacity of the vehicle will also impact the IDV, thereby affecting the premium. The higher the engine capacity, the higher the insurance premium charged.
- Revision in rates due to the terms and conditions of the policy: In case the insurance company (for comprehensive car insurance policies) and the IRDAI (for third party policies) decides to hike the premium rates and incorporate the same into the insurance policy, then the same will result in the policyholder shelling out more for the insurance policy.
Tips to Lower Your Car Insurance Premiums
- Earn NCB benefits: No claim bonus refers to the amount that the policyholder can claim at the end of the policy period for having claim-free years with the insurer. Earning this by avoiding claims altogether, is a good way to secure some return from the insurance company. Also research for additional discounts and benefits that the insurer may have to offer.
- Raise smart claims: Do not car insurance claim small amounts for the repair of small scratches and dents as you will lose out on the NCB and it will adversely impact your premium too.
- Install anti-theft devices: Install certified anti-theft and safety devices such as locks, advanced braking systems, airbags, anti-theft devices, and GPS tracking to reduce the premium amount. Most insurers offer a deduction of up to 2.5% on the premium subject to the kind of safety device that is installed in the car.
- Renew your policy on time: Renew the policy before it lapses as one can be charged for non-payment and it might be reflected on one’s credit history too. Also, renew the policy online as it offers multiple benefits such as last-minute payments and easy, hassle-free transactions. One may even use the help and guidance offered by the insurance company while renewing the policy.
- Buy only necessary add-ons: With more add-ons to the insurance policy, the insurance premium tends to increase. Therefore, purchase only those add-ons that are necessary to protect the car from probable damages. For example, it is wise to purchase an engine protection cover in a flood-prone area as the engine has chances of getting damaged due to water ingress.
- Modifications: Informing the insurer about any new modifications in the car before renewing the policy as non-disclosure of vital information can result in legal and financial hassles. The insurer can allege mala fide and vitiate the insurance policy, rendering it null and void. It is safe to provide all the requisite information sought by the insurance company at the earliest instance.
The price of the insurance is unlikely to see a downward trend in the foreseeable future. Therefore, one must secure his or her interest by ensuring that you lower the premium paid to a reasonable sum.
Invest considerable time to pursue different policies to determine the one that suits your interests and needs the best. One might even consider getting a multi-year car insurance plan to save on the premium.