Car insurance is essential to protect you financially when behind the wheel. Also, third-party insurance cover is compulsory for car owners under the Motor Vehicles Act, 1988. Typically, most car insurance policies are valid for a year. Thus, you need to pay an annual renewal premium to keep the policy active. However, it is pretty common for people to choose an inappropriate option to save on the renewal premium.
To save on renewal premium does not necessarily mean purchasing the cheapest ones. Such plans are always attractive, but you must also check whether they fully cover your car value. Before addressing that particular part, let’s get a few basics right.
Car Insurance and Its Types
Car insurance is a cover for the vehicle owner against the financial loss(es) because of theft or external damage of the insured vehicle. The coverage is as per the terms and conditions stated in the policy document.
As mentioned above, it is now mandatory to have third-party motor insurance if you own a car. The policy fulfills your legal liability that may arise because of physical loss or damage caused to a third party.
Different Types of Car Insurance
In India, there are two main types of car insurance.
- Comprehensive Car Insurance: Just as the name suggests, comprehensive car insurance offers complete insurance coverage. The policy covers own damage to the insured vehicle as well as the third-party liability. The policy covers loss or damage due to natural calamities as well as man-made calamities. It also offers personal accidental cover. Comprehensive insurance is optional, unlike third-party cover.
- Third-party Insurance: This is a basic form of car insurance wherein it covers bodily injuries/damages or losses caused to some third-party property or vehicle by the insured vehicle.
Exceptions Under Motor Insurance
The insurance policy aims to cover emergencies or unwanted effects. However, there are some exceptions. Majority of insurance policy will not cover:
- Accidents caused due to drunken driving.
- If a person driving your vehicle is not of legal driving age.
- Damages caused by a driver without a valid/expired license.
- Act of deliberate damage to the vehicle.
- Damages due to war, mutiny, or nuclear risks.
- General aging due to wear or tear of the car.
There are some more exceptions that depend on one policy to another. You must read the policy document carefully to know what your policy permits.
Car Insurance Add-Ons
Insurance providers generally provide add-ons in case you want to further improve or enhance your existing cover.
Typically, these car insurance riders come at an extra premium and aim to improve the scope of the existing insurance coverage. However, such add-ons are offered within a specific timeframe since the purchase of the vehicle and differs from insurer to insurer. Some of the common car insurance riders are nil depreciation cover, engine protection cover, consumables cover, etc. While opting for car insurance riders, do a check on the particular cover and confirm if it meets your specific requirements.
Before diving into the matter of reducing your car insurance premium, let us look at some of the key factors that affect the insurance premium.
Factors That Affect Your Car Insurance Premium
There are multiple factors that influence the premium amount you will be charged for your car insurance. Some of the key points are given below:
- Type of Insurance: If you choose to purchase comprehensive car insurance, you will be charged a higher premium amount. The reason being the policy aims to provide all-inclusive insurance coverage. As a standalone third-party insurance policy offers standard coverage, it has a lower premium which is fixed by the regulatory authority.
- Vehicle Make, Model, and Variant: The insurance policy premium differs for different types of vehicles depending upon its make, model, and variant.
- Regional Transport Office (RTO): In India, the premium for a car insurance policy is calculated based on vehicle registration location. Indian law categorizes locations as:
- Zone A
- Zone B
Metro cities such as Delhi, Mumbai, Chennai, Bengaluru, Pune, Ahmedabad, and Hyderabad fall under Zone A. The rest of the country falls in Zone B. The premium amount may change as per the zones defined by the RTO.
- Insured Declared Value: The value of your insurance policy depends upon the insured declared value i.e., IDV. IDV is the market value of the car or simply put it is the maximum insurance coverage the insurance provider can offer. Thus, when you purchase a new car, the insured declared value is higher because it is calculated based on the listed price at the showroom. However, the IDV doesn’t remain constant and depreciates over time.
- Age: Insurance companies may charge higher premiums for old vehicles assuming such vehicles may need constant servicing and maintenance.
Following this, here are simple ways to reduce the cost of your car insurance renewal.
Ways To Reduce the Cost of Your Car Insurance Renewal Premium
● Understand Your Needs
There are many car insurance policies in the market with varying premium rates. Naturally, it makes sense to research different car insurance policies to get the premium rates that are favorable and give adequate cover. Most insurance companies have active websites, and there are several online insurance purchasing sites for your help.
Typically, these online insurance distribution platforms are easier to use than the traditional offline methods. They also help you find the best premium rates quite conveniently. While selecting the cheapest price, one should also check the value of the vehicle (IDV) offered by the insurer. Sometimes insurers offer a lower IDV which leads to a lower premium but could hurt you in case of a total loss or theft of your car.
Simply do not go for the cheapest option because that might not provide you with adequate cover. Research thoroughly and select the appropriate value of the vehicle before any comparison.
It is recommended that you take a hard look at the various optional covers (add-ons) being offered with your basic car insurance and decide if you really need them as they tend to add substantially to your total premium. Also, you must always read the fine print of any insurance policy you purchase.
● Use the No Claim Bonus (NCB)
The primary objective of car insurance is to save on expensive repairs and damages to the vehicle. However, raising claims for small amounts could go against that objective. For the smallest of claims, you lose the advantage of No Claim Bonus or NCB in the following year’s renewal. This is the bonus accumulated for each “claim-free” year. Insurance providers offer NCB (or discount) up to 50% on the renewal Own Damage (OD) premium for not making any claim during the policy term.
The benefit offered in the first year renewal is a 20% discount and increases after every successive period up to 50% for five consecutive claim-free years. So, if your car insurance is up for renewal, check for accumulated NCB and declare the same at the time of opting for the Insurance policy.
Also, the wrong declaration of NCB could result in a reduction of your premium but will create complications in your next claim settlement. So be truthful and claim the discount that is due to you because of your good driving behavior.
● Opt for Voluntary Deductibles
A deductible is the portion of the claim, which you choose to pay voluntarily from your pocket. With a voluntary deductible, the insurance company has a reduced liability to pay at the time of claim.
Hence, the insurance company allows a larger discount on the own damage premium amount depending on the voluntary deductible chosen by the policyholder. However, please note that this also reduces the claim amount you will receive
● Renew Policy Before It Lapses
If the current car insurance policy expires, the insurance company may refuse to offer any discounts or NCB if you apply for renewal after 90 days of expiry. Thus, it is essential to keep track of the policy expiration date and renew it beforehand. You can ask your insurance company’s service desk to send you a reminder before the expiry date.
Additionally, you can mark the date in your calendar to get a timely reminder and renew the policy without fail.
● Online Renewal
For renewing your car insurance, you have two options: online and offline. It is often advisable to renew the policy online from Insurer’s website. In such cases, you purchase the policy directly from the insurer and bypass intermediaries and their commissions compared to the offline mode.
Also, it is convenient, easy to do, and allows you better visibility over the chosen policy.
These are different ways to cut down on the renewal premium amount of your car insurance policy. You can choose one or more methods mentioned above to get the lowest possible premium rates. However, the key is to do thorough research before selecting the right policy.
One must understand that cheapest does not necessarily mean the best. In addition to this, there is no alternative to safe driving practices. A safe driving habit with right insurance will definitely help you lower your premium amount in the long run.