No one enjoys paying a high car insurance premium if the car is sitting idle or not deriving any significant economic value. And, as an owner of the car, you cannot even let the policy lapse or keep the vehicle uninsured as car insurance is mandatory under the Indian law.
As an owner, you want to pay a reasonable premium that satisfactorily covers all your insurance and legal needs. So, let's look at all the ways in which you can lower your car insurance premium. But, let's first understand how the premium amount is calculated.
Calculation of Car Insurance Premium
Your car insurance premium depends on the following factors:
- Insured Declared Value (IDV) of the Vehicle - The IDV is the maximum sum insured fixed by the insurance company and is paid in the event of a total loss of a vehicle. It is also regarded as the official current market value of your car. The IDV is adjusted every year as per the natural wear and tear in the vehicle, depreciation and other factors.
- Type and Age of Vehicle - The insurer also checks the make, fuel-type, and model of the vehicle, along with its age. Further, the age of the car is divided into three categories: less than 5 years old, between 5 and 10 years old, and above 10 years old.
- Cubic Capacity of the Engine - The premium amount also depends on the engine capacity of the car - the higher the cubic capacity of the vehicle, the greater will be the premium rate. It is divided into three categories: less than 1000 CC, between 1000-1500 CC, and more than 1500 CC.
- Insurance Type - Your premium is also affected by whether you are selecting a third-party policy or a comprehensive policy (third-party + own damage).
- Geographical Zone - The city or town in which your car is registered also affects your car insurance premium. In India, all the metro cities fall under Zone A, and the rest of India comes under Zone B. Cars registered in Zone A have more expensive insurance coverage rate compared to Zone B because vehicles in Zone A are more vulnerable to theft and accidents.
By and large, these are the major factors on which your car insurance premium is calculated. However, there are quite a few hidden clauses that can help you cut your car insurance premium down.
Steps to Lower Your Car Insurance Premium
- Compare Different Policies Online Before renewing or buying your next car insurance policy, compare the policies of different insurance companies online. Check price quotes from at least three companies and compare the policy benefits and insurance premiums. Rather than depending on an agent, purchase your car insurance online to get a cheaper rate on the insurance coverage. Since a broker isn't involved in the transaction when you buy online, the insurer passes the benefit of a lower cost to the customer.
Raise Your Policy Deductibles You can reduce your car insurance premium amount to a great extent if you raise your policy deductible. The policy deductible is the amount paid from your own pocket when you make a claim to the insurance company. For example, if you have made a total claim of Rs 100,000 to the insurance company, and you pay Rs 25,000 from your own pocket, then the final settlement amount will be Rs 75,000. The higher the deductible amount, the lesser your insurance rates. But you should select as much as you are comfortable with. Never go beyond your financial means. You can also opt for higher voluntarily deductibles if you fall under the following category:
- If you have a claim-free insurance policy for a few consecutive years
- If you follow and practise safe driving habits, that reduces the risk of accident
- Transfer No-Claim Bonus Your car insurance policy promotes safe-driving habits in the way of a "No-claim bonus" (NCB). You are entitled to receive a no-claim bonus for every claim-free year, which can be redeemed in the next policy renewal date. By not claiming consecutively for a 5-year period, you can reduce your car insurance rates by almost 50%. You should also note that car insurance is not linked to the car, but rather the person who buys it. Therefore, you can transfer your no-claim bonus when purchasing a cover from a new insurance company. Also, you can retain the same and use it when you buy your next car.
- Install Safety Devices Installing safety devices like an anti-theft alarm, gear lock, steering lock, etc. can reduce your annual premium amount by up to 5%. Note that the safety devices installed should as per the design and standard as approved by road transport authorities.
- Re-Evaluate Policy Benefits and Avoid Additional Fittings On a regular interval, you should re-evaluate the policy benefits and consider removing all those riders and add-ons which do not make sense anymore in your case. For example, if your car is over five years old, then you can remove the anti-rust cover, sealant protection, and consumable protection. This will help you bring your car insurance premium amount down. Also, avoid additional after-market fittings on the car, as it increases the premium payable. Or, you can try to take insurance coverage on a factory fitted version of the car, which will fetch you an attractive deal.
- Avoid Policy Lapse Always renew your car insurance policy within the due date and avoid a policy lapse. After your policy lapses, you are liable to lose benefits like a no-claim bonus and will have to start afresh.
Car insurance is the single biggest component in your car maintenance cost, and a high premium amount severely impacts your ownership experience. Steps like buying an online car insurance policy, raising policy deductibles, shifting to a new insurer with attractive policy terms, etc. will help reduce the coverage rates considerably. Also, the advent of fintech platforms, which offer attractive deals and discounts, can further lower your car insurance premium.