Factors Affecting Premiums for Car Insurance

To some people, car ownership isn’t merely a solution to a transportation problem, it’s a symbol of success and financial prosperity. It’s a way to show the world that a person has struggled through hard work for a long time (or gotten extremely lucky) and this is the result of the purchasing power that the person has gained.

That being said, the automotive industry has gained the ability to shape wants and desires for its own profit through effective advertising by companies and by designing and producing cars for specific segments of customers. Customers today are spoilt for choice when it comes to buying cars, and more importantly, when buying car insurance or four wheeler insurance as it’s more commonly known.

Whether or not to insure a car is a no-brainer. It’s necessary even in its most basic form as a requirement to qualify the vehicle as road-legal. An uninsured vehicle can cost the driver in more than just fines. Car insurance for your car is just as important as health insurance for you, and your peace of mind. If your car is stolen, the car insurance policy will cover you. If your car is damaged, your car insurance policy will cover that too. If you’ve had a traffic accident, the car insurance policy will be the mediator to settle all disputes and, if you have third party insurance, pay all dues.

Just as the age of the applicant, smoking habits, etc. affect the premiums for health insurance, there are certain factors that affect the premium of car insurance as well. Some of these are listed below:

  1. The owner: The first factor determining your car insurance has nothing to do with your car – and everything to do with you. Studies and research has shown that men are far riskier behind the wheel than women, and it’s for this reason that women usually have lower car insurance premiums. Very old and very young vehicle owners are also placed in the high risk category, and hence have to pay higher premiums. Your marital status, too, can have an effect on your premium amount, as married people are charged lesser for premiums than non-married people.
  2. Frequency of claims: Car insurance companies award safe drivers with discounts and benefits every policy anniversary. If you don’t have any claims on your insurance policy during any given policy year, chances are that your insurer will give you a discount on your next years’ premium payment. This discount on premiums is called a No-Claim Bonus, and every discount you get for consecutive years of no claims stack up and get you bigger discounts on consecutive renewal premiums. This would be great if it wasn’t just balancing the board from what’s called a Loading Charge, which is a penalty increase on your future premiums for every year in which you have to make a claim.
  3. Employment status / title / work: The nature of your employment could also affect your premiums, as professionals like doctors get discounts on premium from most insurance companies. Discounts are also given to government employees, soldiers and all personnel in the country’s defence forces. Some insurance company employees and members of the Automobile Association also get discounts on insurance premiums.
  4. Automated car safety products: If your car has been fitted with an anti-theft device, you would be eligible for a discount on your . Anti-theft devices and car alarms sound an alarm when the car is being broken into or damaged when the owner isn’t around, and the more advanced devices also have GPS installed which help track the stolen vehicle. Anti-theft devices, while expensive, should be taken and installed even if there’s no discount on premiums, as they are very useful.
  5. Type of coverage required: Premium costs could be cheaper or more expensive depending on the level or degree of coverage that’s required. Higher and more comprehensive coverage can be availed for a higher premium cost. Third party coverage is also mandatory under law, but collision coverage is optional – but getting this is hugely beneficial to the car owner. Coverage can also be increased to cover any damages caused by electrical and non-electrical accessories that don’t come stock with your vehicle.
  6. The make and model of the car to be insured: The car that has to be insured is the other important factor apart from the owner of the vehicle that dictates the major chunk of premium payments. The premium would be higher for riskier vehicles like sports cars of heavy transport vehicles, and is the lowest for slower and more practical cars. The fuel supply of your vehicle can also affect the vehicle insurance – as CNG and gas fitted cars have a higher premium than petrol cars, and petrol cars have a higher premium than diesel cars.
  7. IDV: Insured Declared Value or IDV is the amount that directly corresponds to the current market value of the car. Hence, the IDV decreases over time, as the value of the car decreases every year due to depreciation. The depreciative effects of the IDV can be countered through regular and effective maintenance.

Car insurance is important and mandatory. Since you have to get a car insurance policy anyway, it makes sense to get the best possible one. The insurance policy that comes with your vehicle isn’t the only one out there – as there are many companies that offer car insurance policies with varying coverage and on different terms. Some policies may have easier terms and conditions compared to others.

Car insurance policies with third party insurance are extremely important in big cities, as traffic accidents are more common now than ever. Road rage and accident disputes that are resolved without an official mediator have resulted in fist fights, and in some cases, murder.

*Please note that all promotions, amounts, tenures, repayment requirements, time frames, interest rates, other rates, charges, fees, ceilings, requirements, criteria, features, benefits, exclusions, calculations, ratios, averages, ratings, terms and conditions mentioned above are as of July, 2016, and are subject to change at any time. All banks / NBFCs / insurance providers / financial service providers / companies, etc. mentioned above retain all rights to modify, replace, or add to or subtract from any of the above, in any way, at any time, and at their own discretion. You are requested to reconfirm the same with your chosen bank / company / NBFC / insurance provider / financial service provider, etc. before making any financial commitments.

GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017

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