With the festive season round the corner, banks are offering attractive car loan rates and companies are slashing vehicle prices. So it is the optimum time to shop for your dream car, and an appropriate car insurance.
Here are a few things to ask yourself when you buy a new car.
Do you really need a big car?
The answer to this clearly depends on your financial situation. It should be noted that the value of a car would depreciate to 50% within a span of three years, and this could go on for 5 years. If you are a salaried individual the car loan interest is also not deductible.
So, you need to identify the appropriate type of car to purchase after careful consideration.
When is the right time to invest in a car?
Car dealers have specific targets set for the end of every quarter, in the months of March, June, September and December. Buying a car at the end of a quarter is not recommended because, once the targets are met, dealers might be reluctant to offer good deals on subsequent purchases.
Petrol or Diesel?
The fuel cost of petrol is higher than diesel; however, petrol cars are less expensive than diesel cars. Also, the maintenance costs of diesel vehicles are higher when compared to petrol cars.
If you travel for more than 1500 km every month, you should ideally opt for a diesel car.
Choosing the right Car Insurance
In India, a car insurance is mandated by the Motor Vehicles Act. Purchasing a car insurance is beneficial in claiming for damages to your own vehicle, in the case of an accident. You can also claim for insurance if your car is stolen. This is included in the Comprehensive Cover that all policies provide.
Additionally, an insurance pays for the damages caused by you to a third-party vehicle. This is part of the third-party liability cover that is offered by car insurance policies.
Insured Declared value (IDV)
The insurance premium that you have to pay is determined by the Insured Declared Value (IDV) of the car. The IDV is essentially the market value of the car at present, and it is directly proportional to the insurance premium on the vehicle. Hence, a lower IDV corresponds to a lower insurance premium, and vice versa.
No Claim Bonus
On purchase of a car insurance, the policy documentation would have mentioned a factor called No Claim Bonus (NCB). This is the discount that the insurer provides you for not making any claims in a year. This discount is deducted from the premium for the subsequent policy year. The discount offered is usually between 20-40% on the premium amount. An attractive feature of the NCB is that it gets accumulated over the years, as long as there is no disruption in the renewal of the policy.
Zero Depreciation Insurance
An ordinary car insurance policy deducts the depreciation on a car and then reimburses the claim. If you have opted for a Zero Depreciation Policy, then the claim is reimbursed completely, irrespective of the car’s depreciation rate. The cover includes the plastic parts as well. However, this policy is allowed for the initial years only.
In the case of a cashless insurance policy, the car-owner needs to pay a part of the expenses for repair. Insurers have tie-ups with a vast number of car care providers in the country. These are called Network Garages. If the car is repaired at one of the network garages, the insurance company pays the garage directly and the car-owner just has to bear the mandatory charges. The insurer deducts the amount of depreciation on parts of the car based on the usage of the vehicle, and a flat 50% for the plastic parts.
An attractive feature of the cashless policy is the quick and hassle-free car repair process, and the fact that the owner needs to contribute only a small amount towards it.
Most car insurance policies clearly specify certain situations or driving factors that are not included in the policy cover. Expenses caused by wear and tear, damages caused to the car while it was used for illegal purposes, damages incurred while the driver was under the influence of alcohol, and willful damages caused to the car by the owner are some examples of these exclusions.
However, some of these can be included in your car insurance policy by purchasing add-on covers. Exclusions such as wear and tear expenses can be added to the coverage at the cost of a higher premium.
This is the amount that is absorbed by the car-owner when he makes a claim. When you decide to choose this option, it is possible to decrease the premium paid for own-damage up to 35%. Voluntary excess is usually lesser than the NCB amount that you will be eligible for the following year.
It is important to note that buying a car insurance policy online is cheaper; so it is ideal to purchase one directly from the insurer’s website or from a financial services aggregator. Also do a good amount of research before you make a choice.
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GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017