Tips to Keep in Mind While Buying Car Insurance Plans
What Is Car Insurance?
A car or vehicle insurance is a policy that protects you from financial loss in case of an accident or natural disaster like floods or fire that causes damage or loss of your car. You need to pay a premium (generally annually) and the insurance company agrees to pay your losses as per the terms and conditions defined in your policy. Car insurance could also cover third person liability expenses, and medical coverage depending on the premium paid. Naturally, the higher the premium, the larger the benefits you get. In simple terms, car insurance basically protects you against financial loss in case of an accident—man made or natural.
While buying a car, remember that it is mandatory to purchase car insurance as well.
What Exactly Is Covered in A Car Insurance Policy?
A typical policy would cover the following when you purchase vehicle insurance:
1. Loss or damage to your vehicle due to natural disasters: This includes fire, explosion, lightning, earthquake, flood, typhoon, hurricane and landslide amongst other natural calamity.
2. Loss or damage to your vehicle due to non-natural disasters such as burglary, theft, riot, or a malicious act.
3. Third Party Legal Liability: This is protection against legal liability if your vehicle happens to be in an accident resulting in the permanent injury or death of a person and damage caused to the surrounding property.
What is not covered in a Vehicle insurance policy?
In general, vehicle insurance does not cover wear and tear or mechanical breakdown of your vehicle.
Factors affecting the Vehicle premium:
All of us would like to get maximum coverage saving as much premium as possible. Following are some of the factors affecting the premium amount:
1. IDV: All vehicles are insured at a fixed value known as Insured’s Declared Value abbreviated as IDV. It is calculated based on the vehicle manufacturer’s listed selling price, the cost of any added accessories and deducting the annual depreciation.
2. Age: Premium discount is offered as per the person’s age. This is due to the dictum that as a person ages, he becomes more responsible and has a lower tendency to drive rashly.
3. Profession: Professionals belonging to certain occupations are eligible for discount on premium. Typically, the professions included in the list for discount includes doctors and chartered accountants amongst other professions.
4. Claim History: If you have a history of making no claims during your insured years, you could be offered a no claim bonus, ranging from 10%–50% depending on the insurer’s policy.
Tips to reduce the insurance premium:
For a new car:
Buy add-ons for peace of mind: If you have just purchased a new car, it is best to get comprehensive coverage along with add-on insurance coverage for the engine or gearbox, for instance. Though this would mean an increase in the premium amount, down the line it would save you a couple of lakhs of rupees if you are in an unfortunate accident.
Shop around for the best policy: Do not just blindly choose the insurance policies offered by the car showroom. You can save on the premium amount by comparing car insurance premiums from multiple insurance companies. A basic online search would yield a comparison of the insurance policies offered by various insurance providers. Some basic research goes a long way in saving you a couple thousand of rupees every year on your premium.
Deliberate on the advantage of a no claim bonus on your policy: If are, unfortunately, involved in an accident or your car suffers damage due to any one of the reasons you are covered for think about the pros and cons of paying for the repair yourself. If the damage is minimal and the repair costs are not large, then it might be a good idea to pay for it out of your pocket. If you do not file a claim for the year, then you will be eligible for the ‘No Claim’ discount on your premium the following year, which means your premium will be lower.
You need to compare the cost of repair with the amount you will receive as a ‘No Claim’ discount. However, if the repair costs are large, then there is no question that you need to file a claim to cover the cost of damages.
For used / old cars:
If you have bought a second-hand car, or have an old vehicle, it would be better to go for basic car insurance plan without having too many add-ons. Because of the age and condition of the car, your premium might become too expensive.