Every little thing it is advisable find out about auto insurance premiums – Forbes

The motor vehicle insurance covers the vehicle owner against financial loss caused by theft or accidental damage to the insured vehicle, as well as statutory liability that may arise as a result of damage to third parties. The insurance cover is based on the conditions specified in the insurance policy.

Car insurance is compulsory if you own a car and the policy meets your statutory liability, which may arise due to personal injury or damage caused to a third party.

What is the car insurance premium?

The simplest explanation can be: The car insurance premium is the money you pay your insurer for coverage. The payment method is unique at the time the contract is concluded for the entire term of the contract.

Car insurance premium may vary in terms of cost, depending on the insurance provider, type of car, geographic location, type of coverage you have chosen, additional coverage, insurance policy deductible and various other factors including your driver's license and even your age .

How does the car insurance premium work?

As a potential buyer of a new car or owner of a vehicle, you should know that your vehicle must have valid insurance (fully comprehensive or only liability). Car insurance is essential to keep you financially secure when you are behind the wheel. In addition, liability insurance for car owners is compulsory under the Motor Vehicles Act of 1988. Most auto insurances are usually valid for one year. Therefore, you will need to pay an annual renewal premium to keep the policy active.

How do insurance companies calculate the insurance premium for your car?

Usually the fine print of your insurance policies contains several clauses – the Terms and Conditions section, exclusions, etc. We seldom bother reading the fine print, focusing on the highlights like premium amount, duration of insurance, basic coverage of the policy, etc.

Since the premium amount is the highlight when buying the policy, we tend to just compare the numbers without really understanding how the amount looks. We also don't take the time to understand how the insurance company calculates the amount.

There are several factors that will determine your car insurance premium.

  • IDV – insured declared value of the vehicle
  • Age of the car
  • Cubic capacity of the car engine
  • Geographic zone
  • Private accident protection
  • Other add-ons
  • Supplementary benefits / liability insurance

Let's look at the factors individually:

IDV or insured value of your vehicle

The term IDV of the vehicle refers to the maximum amount of damage that your insurance company pays (minus the deductible) if the damage to the car is a "total loss" or the repair costs exceed 75% of the IDV. The same applies in the event that your vehicle is stolen.

For example, when you sign the contract, you buy a new car with an IDV of 12 lakh. Now, in the event of a total write-off or theft, the insurer can pay out a maximum amount of INR 12 lakh minus the deductible for valid and permissible claims.

Motor insurance are performance-based policies, i. H. You will receive an amount up to the amount of the damage to your car, but no more than the IDV of the policy. When you buy a new car and take out an insurance policy, the insurance company determines the IDV based on the ex showroom price and the India Motor Tariff (IMT) depreciation.

Now the value of your vehicle starts to decline every year according to the depreciation plate described in the IMT. Therefore, if the IDV of your car is low, the insurance premium will also decrease. It is advisable to select the correct IDV depending on the age and price from the showroom of the vehicle so that the vehicle is adequately insured.

For example, if you buy a new car, its value will be greater than that of a four-year-old car. The Insured Declared Value or IDV is the value that has been set for your car in order to calculate its value at the time of the claim and to calculate the premium accordingly.

In case you have additional accessories installed in your car, for example a high-end music system or a loudspeaker, the value of these accessories will be added to the IDV separately. At the time of the extension, the price will be adjusted to take account of any depreciation in the value of the vehicle and accessories. For example, suppose you buy insurance for a car that is more than five years old. In this case, the IDV will be determined on the basis of an agreement between you and the insurer after adjusting the value after depreciation.

Here is the formula for calculating the IDV in insurance:

IDV = (manufacturer's list price – depreciation) + (accessories that are not included in the sales price – depreciation) without registration and insurance costs.

Please note that the IDV calculation only applies to the self-damage section of the insurance and not to statutory liability insurance.

Sometimes the insurer charges a low premium by artificially reducing the IDV and you need to be vigilant in this regard.

Age of the car

As your vehicle gets older, it loses value for a number of reasons. In addition, the introduction of newer models further reduces the price of your car. The main reason for the depreciation is the general wear and tear of the vehicle compared to the new model. Insurance companies have a fixed schedule that applies to vehicles and their market value depending on their age. The timetable is independent of the make of the vehicle. Usually the schedule looks like this:

Engine displacement

The engine size of every car is measured according to its cubic capacity. The size of your car's engine has a significant impact on how much insurance premium you will be charged for your insurance coverage. As a rule, the premium level for liability insurance for new and old vehicles is similar. This is because the premium is tied to the size of the engine and not the overall age of the car.

The following are the three categories according to the India Motor Tariff for the displacement of vehicles:

Geographic zone

The insurance premium you pay for your car depends on where your vehicle is registered. The Motor India tariff divides the geographical division into two zones – Zone A and Zone B.

Zone A includes Ahmedabad, Hyderabad, Mumbai, Pune, New Delhi, Chennai, and Bengaluru. The vehicles in these cities are believed to be more prone to accidents and theft. Zone B includes the rest of India. The insurance premium for cars in zone A is higher than in zone B.

Third Party Coverage

In India, liability insurance is compulsory when you own a car. The insurance protection protects you against financial claims for possible damage to property or personal injury to your insured vehicle in the event of an accident. However, liability insurance (TP) does not include compensation for damage to the insured's vehicle. The premium for TP cover depends on the engine size of the vehicle and is set by the IRDAI insurance regulator.

Own damage (OD) coverage

In general, personal damage protection is optional when taking out car insurance. However, it is very useful and advisable. It will help you cover the cost of repairing your car in case of any damage due to the hazards covered by the insurance policy such as fire, earthquake, accident, flood, etc. If the IDV of your vehicle is higher, the premium is also higher and vice versa.

Personal accident protection for owners, drivers and others

This particular component of your car insurance premium goes one step further and protects you. The policy offers the owner compensation in the event of accidents, death and disability up to an insured amount of INR 15 lakh.

You can also opt for a variable amount personal accident insurance policy allowed in the India Motor Tariff to cover passengers who may be traveling in your vehicle. The premium therefore rises with the increase in the sum insured.

Other add-on covers

The final factor that will affect your car insurance premium is the supplementary coverage. Add-ons are the extra coverage that allows you to opt for more comprehensive insurance coverage. There are different types of surcharges, such as: B. the protection of the applicable depreciation in the event of damage, engine damage that can result from flooding, etc., breakdown assistance and much more.

Every single add-on makes your insurance more robust and provides comprehensive protection. If you choose to have more add-ons, the premium amount will take all of these into account and thus be higher.

As we can see, several factors determine the car insurance premium. The amount varies from person to person and also depends on the combination of the above factors. The bottom line is that you choose the right car insurance that offers comprehensive protection and guarantees comprehensive protection against financial loss.

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