Tuesday, 9 January 2018

Why Motor Insurance Premiums are high and what to do about it?

Car insurance or motor insurance is mandatory in India, and the plan protects your vehicle and you in case of an accident or during times of unexpected risks. The premium rate that is paid at regular intervals differs according to the vehicle and the owner.   
The insurance industry revises the premium of different insurance plans annually. This is mainly done to restrain the claims ratio- the ratio of the claims to the premiums paid.

The Increase in Premiums  

As per IRDAI’s (Insurance Regulatory and Development Authority of India) recent proposition, the third-party liability premiums of the motor insurance can cost up to 50% more. Any motor insurance has two parts namely own damage and third-party liability.
As per the law, every motor vehicle owner in India should have insurance for motor vehicle liability. This component of the motor insurance does not cover damages caused to the vehicle or the owner; it includes the debt that arises due to the damage caused to the third-party.

The other component covering own damage is optional, and this is not fixed by the regulator.

The Reason for the Increase in Premium Rates

Every year when IRDAI calculates the premium, it takes into consideration the data showing gross premiums and the net claims paid from the previous years. In case of loss of life, the company has unlimited liability for a loss of life.
The industry pays more to settle third-party claims, more than what it receives from the premiums for third-party insurance. To bridge this gap between premiums received and claims, the rates of insurance are increased and are likely to be revised every few years.

Factors that Influence Car Insurance Premium in India

While the governing bodies regulate the overall increase in your insurance premium, there are other factors that determine your fixed insurance premium rate. Listed below are a few of them.

     Purpose of the vehicle: Commercially used vehicles have an increased premium when compared to private ones.

     The vehicle model: The insured declared value of your vehicle or the market value of your car heavily influences your premium amount. The higher the cost of your car, the higher the premium.  Other factors that are counted are the fuel type, the date of registration, the cost of spare parts and the year of manufacture of your car.

     Safety and Damage Control: Insurance premiums are always more for cars that are more susceptible to damage due to the absence of safety features like robust locks, advanced braking systems, etc.

     The Insurance zone: Urban car owners pay more premium when compared to their rural counterparts due to vulnerability to accidents and thefts.

Other factors like your credit score, your gender, and your age are also taken into consideration.

Tips to Reduce Car Insurance Premiums

With recent regulations, picking a good motor insurance plan with a very low premium is quite an arduous task. Here are a few tips to help you choose well.

     Compare Car Insurance- Always, as a ground rule, before you purchase a motor insurance, compare the quotes offered by different companies and analyze the benefits provided. You can get these details from the websites of the insurance companies or in any of the insurance comparison platforms. The benefits offered must be studied in detail as it differs between companies.

     Choose Coverage with Care- The benefits offered by each policy are pre-determined. If you have opted for a flexible plan, you would be able to opt out of coverage that you may not need. This can lower the premium rate. You should choose the coverage based on your driving history, the city and the route you mostly drive, etc.

     Safety Features fetch you good discounts- Installing the recommended safety features listed by the Automobile Association of India (AAI) can earn you good discounts on your premium. The percentage of discounts offered is between 2.5% up to 5%. Some of the prescribed safety factors are airbags, steering-wheel locks, locks for gears, alarms for theft, etc.

     Check for Other Discounts- As a policyholder, you are eligible for other discounts offered by the insurance company based on your age, profession, driving record and different specifications. Some insurance companies offer a discount for a covered car parking and other factors. Check with your agent.

If you are a member of organizations like AAI, you get additional discounts on your premium fare.
     Choose voluntary deduction when applicable- Increasing the deductibles on your policy can reduce your motor insurance premium. The amount you pay out of your pocket when making a claim is called a deductible.

If your deductible is zero, you will be eligible to receive the entire amount while making a claim. Post the claim; your regular premium will be high. A voluntary deduction can be applicable in specific instances like if you are an experienced and safe driver and have not met with accidents in the past. Another example is if you have not claimed insurance in the last few years.

The most important aspect of purchasing a motor insurance policy is to pay the premium regularly. In case of a lapse, you will lose out on certain loyalties that you might be eligible for. 

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