According to the Motor Vehicle Act of 1988, it is mandatory to have a car insurance policy in India. A third party insurance policy covers the cost of any legal liabilities that may arise due to damage to property or lives of a third party in case of an accident. Besides, a comprehensive policy covers own damage and injuries as well.
In order to be covered under a motor insurance plan, you have to pay a certain amount of premium to your insurance provider. The amount of premium depends on various factors.
Car Insurance Premium
Following are five variables that play a major role in determining your car insurance premium.
- Brand and model of the car
The brand and the model of the car is an important determinant. High-end cars generally attract a higher premium. This is because the cost of repairs or replacement of the car parts is high in case the car is damaged.
- Age of the car and IDV
Older the car, lesser is the Insured Declared Value (IDV) of the vehicle. IDV is the maximum amount fixed by the insurance provider that is paid to the policyholder in case of theft or loss of the vehicle. As the IDV decreases with passing time, the cost of premium is also lowered. A new car value is more than say a three-year-old car with 30,000 km on it. Insured declared value, or IDV, is the value that the insurance company places on your vehicle to estimate its worth at the time you apply for motor insurance. IDV calculation is used only for a comprehensive insurance policy and not a third party insurance cover.
When you buy a new car and are getting insurance for it, the IDV is calculated on the basis of the price of the new car, i.e., its ex-showroom price. If you have a car for which you are renewing the insurance, the IDV will be adjusted for any operational wear and tear that the car has experienced, or to put it in technical terms the IDV is adjusted for any depreciation that it has undergone for a vehicle of its age.
IDV is the maximum amount that you can claim under a motor insurance policy to compensate for any loss arising from theft or accident. So, if you suffer total loss in an accident of your three-year-old car that is worth Rs 4 lakh at the time of the accident, under no circumstances will you be compensated for more than Rs 4 lakh.
The thumb rule is – more the IDV, higher the premium and vice versa. So as your car grows older, the IDV decreases.
| Age of Vehicle | % of Depreciation (as per Indian Motor Tariff) |
|---|---|
| Up to 6 months | 5% |
| 6 months to 1 year | 15% |
| 1-2 years | 20% |
| 2-3 years | 30% |
| 3-4 years | 40% |
| 4-5 years | 50% |
- Power of the car
Though many may not be aware of this fact, but the power of a car is a factor that helps determines the premium amount. High-powered cars have a greater chance of being involved in an accident. Insurance providers, therefore, charge a higher premium for cars that have a larger engine size.
- No Claim Bonus
As the name suggests, No Claim Bonus (NCB) refers to the reward you may receive from your insurer for not making any claims in the past year. Your insurance provider may provide a discount that may range anywhere from 20% to 50% during your next policy renewal, thus reducing the cost of your premium.
- Your place of residence
The chances of theft, vandalism, traffic, and accidents are higher in urban areas. Hence, insurance quotes for those residing in the urban areas are relatively higher as compared to those living in the suburban areas or in rural areas.
India has been divided into two zones, Zone A and B, depending upon the kind of risks that motor vehicles in these areas are exposed to.
Zone A: Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, and Pune. Vehicles in these cities are considered more vulnerable to theft and accident.
Zone B: The rest of India falls into Zone B. Zone A cities have a higher motor insurance premium than Zone B. For example, if your car is registered in Delhi, you will pay a higher premium compared to a person whose car is registered in Jaipur.
A car is an expensive investment. In order to prevent any financial damage in case of an accident, you should purchase a car insurance policy. You may request multiple car insurance quotes from various insurance providers and select the one offering the best value for money with the right coverage.
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