Buying third-party liability insurance for a car is mandatory in India. However, these plans do not offer protection to your vehicle. If you are looking for coverage for damages to your car, too, then you can opt for an own-damage car insurance policy or a comprehensive car insurance policy.
Motor car insurance policies have a set term for which they are valid and have to be renewed by the end of the term to stay in force. The car insurance price or premium is the amount you pay for the policy term to get the specified coverage. The insurer takes a lot of factors into consideration while determining the premium for a car insurance policy. In this article, we will share four essential factors that affect the price of car insurance.
When you buy a motor car insurance policy, the insurer offers to reimburse costs associated with damages to you, your car, a third-party person, and/or third-party property based on the type of insurance purchased by you. This is offered at a nominal annual charge called the premium. This is the fixed cost of your car insurance policy regardless of whether you file a claim or not.
But, how do insurers calculate the premium on a policy? While we can’t detail the entire process, and it might vary from insurer to insurer, here are four factors that impact the price of your car insurance policy.
Let us understand what factors affect car insurance in detail.
Factors that Affect Car Insurance Price
Here are four factors that affect the car insurance rate:
- Type of policy and add-ons
There are different types of car insurance policies available. You can opt for the legally mandatory third-party liability-only insurance for the car or a comprehensive policy that offers coverage to your car along with the third-party liability cover. A comprehensive insurance policy will cost more than a third-party liability-only plan.
Also, when you opt for a comprehensive policy, you have the option of customising the policy as per your needs by buying add-on covers. These add-ons offer extra protection to your car but come at a price. Hence, if you choose more add-ons, the car insurance will be costlier.
- Your demographics
Your age, gender, and geographical location also play a major role in determining the premium of your motor car insurance policy. For example, most insurers follow statistics that show that young men are more prone to accidents than young women. Therefore, a policy given to a young man will be costlier than that given to a young woman.
Your location is also an important aspect in determining the car insurance price. People living in areas where accidents or car thefts are frequent might have to pay more for a car insurance policy than those living in quieter and safer areas.
The Insured Declared Value or IDV is the maximum amount that the insurer will reimburse if your car is damaged beyond repair or stolen. It is calculated by taking various aspects into consideration like the make and model of your car, type of engine, etc. The insurer also factors in the depreciation of the car and its parts to arrive at the market value of your vehicle. Finally, the premium is calculated based on the IDV of the car. A higher IDV attracts a higher premium and vice versa.
- Safety fittings
The car insurance policy offers protection against damages to your car because of an accident, natural disaster, man-made disaster, or theft. There are many devices that can help you avert accidents and mishaps and reduce the chances of your car getting stolen. If you install these devices, then the insurer can feel assured of fewer claims and offer you a discounted rate on the insurance policy.
Apart from these factors, there are many other aspects that can impact the premium of your car insurance policy, like a no-claim bonus, membership in certain automobile associations, etc. Before buying the policy, talk to the insurer and look for ways to reduce the premium without compromising on the coverage. If you do not file a claim during a policy year, you can get a No Claim Bonus when you renew the car insurance policy.
The car insurance premium is a recurring cost. While you need a good car insurance policy to protect yourself from financial losses due to damages caused by an accident or mishap, you must also keep the premium amount in mind while selecting the insurance plan.
However, avoid opting for the cheapest plan without thinking about your requirements and the reputation of the insurer. Today, most insurers offer tools to help you compare policies online along with their premium amounts. You can also undertake the car policy renewal online. Use these tools and make sure that you get the perfect insurance plan for your four-wheeler. Good Luck!