Owning a car is a significant event. Apart from being convenient, it is also a status symbol among most in India. Customers are spoilt for choice when it comes to buying a car as there are a number of models for customers to purchase based on their necessities and desires. However, it is not easy to buy a car, the reason being - money! Cars, for all their advantages, do not come cheap, the fancier the car, higher is the price. Therefore, procuring a car is not easy.
However, there are a number of financial offers available for customers who wish to purchase a car. Although paying for a car through a lump sum payment is the best option, customers can also opt for car financing options such as car loans and hire purchase among others.
In addition to buying a car, the next important purchase to be made is that of a car insurance policy. In financial uncertain times such as these, it is important for customers to have a safety blanket. There are two types of car insurance policy . One is ‘third party liability’ and the other is ‘comprehensive policy’. Third party liability refers to the cover provided when the policyholder damages another person’s vehicle and this insurance cover is mandatory. Comprehensive cover offers protection for the policyholder’s vehicle itself.
The amount of premium that a customer will have to pay every year for the insurance policy depends on a number of factors.
How is Car Insurance Premium Calculated ?
Calculating car insurance premium is quite simple. Formula that is used is as follows -
Own Damage Premium - (discounts + no claim bonus) + liability premium
There are numerous websites that provide when customers provide the required details. The formula used by all those websites is as given above.
Advantages of Calculating Car Insurance Premium
There are numerous benefits to knowing, at least tentatively the car insurance premium applicable on a particular loan before procuring that loan. These include -
- If customers know the premium that they will have to pay, they can manage their finances in such a way that paying for the loan will not cause financial harm to them.
- Customers can compare between different loan options and choose the best plan.
- Overall planning will become a lot easier.
Factors that Affect Car Insurance Premiums
There are a number of factors that determine the premium amount to be paid by customers. These include -
- IDV or Insured Declared value which refers to the maximum amount that can be claimed by a customer for the car.
- Age and type of the car - Older the car, higher is the premium that has to be paid. This is because cars are depreciating assets whose value decreases with time. Expensive cars that boast of rare modifications will also attract higher premium payment.
- Cubic capacity of the car - higher the cubic or engine capacity of the car, higher will be the premium payment to be made.
- Geographical zone where the car is purchased from will also impact the premium amount.
- Additional accessories that were not a part of the car originally will also result in higher premium payments
- Anti-theft discounts and no claim bonuses also have an impact on the premium amount.
Buying a car is not just a luxury but is also a necessity in today’s times. However, due to the expensive nature of the purchase, customers will have to insure their car for the sake of being safe and to prevent additional hassles if there is some damage to the car. Customers can reduce their premium payment amount by ensuring that their IDV is correct and buying a car that they will actually use and is apt for their requirements. Researching around for different options before settling for a particular insurance plan is also advised.
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GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017