Most of us visits vehicle dealers before they are going to a vehicle and inquire about prices, models and features. While purchasing the vehicle, we will try to reduce the cost of vehicle and we will bargain for the same. But we can reduce it with smart selection of motor insurance. if we choose motor insurance outside of dealer, the premium amount will decrease upto 25 to 30%.
Even in renewal of insurance, we can reduce the premium amount by taking some minimal precautions before we purchase it. Smart way of selection will reduce the premium and improve the coverage.
Before we are going to learn about this smart way, we will learn about basics motor insurance,
Type of Car Insurance:
In India, two types of car insurance plans are offered:
Third-Party Insurance- Third-party insurance is a basic vehicle insurance As per applicable terms and conditions, it covers bodily injuries/ damage(s) or losses caused to any third-party vehicle/property by the insured vehicle.
Comprehensive Insurance- True to its name, the comprehensive vehicle insurance policy provides enhanced insurance coverage. It covers third-party liability as well as own damage to the insured vehicle.
Generally, the comprehensive car insurance plan provides the following coverage:
- Damages caused due to accident, riots, strikes, malicious acts, earthquake, flood, storm etc.
- Loss or theft of the insured vehicle
- Third-party liability
- Personal accident cover for the driver
Generally, the comprehensive car (motor vehicle) insurance plan doesn’t provide the following coverage:
- Ageing, wear and tear of the vehicle
- Mechanical or electrical breakdown
- Damage causes under the influence of alcohol, drugs and any other intoxicating substance
- Damage caused by driver driving without a valid driving license
- Consequential loss
- Loss damage outside the geographical boundary of India
- Note- Some exclusion might cease to exist in case the policyholder ops for specific additional riders.
Lets learn Add-ons on Motor Insurance:
In case the offered car insurance coverage doesn’t fulfil your insurance expectations, you can opt for car insurance add-ons offered by car insurance providers. It will enhance the offered car insurance coverage and will fulfil your individual insurance expectations.
Car insurance add-ons are also known as car insurance riders or car insurance additional riders.
While add-ons come at a nominal premium, they increase the scope of insurance coverage as per the insurance expectations of the insurance buyer. Keep in the mind that generally these additional riders are offered for the cars that are not more than 5 years old.
Mentioned below are a few of many car insurance add-ons:
Nil Depreciation Cover- This add-on is highly recommended for new cars, as this is helpful to reduce the cost of losses the insured would otherwise have to bear due to the wear and tear of replaced parts plastic/rubber, fibre, metal and paint material. Also known as nil depreciation or bumper, it leaves out the depreciation factor from the coverage, giving you the complete cover. It costs anywhere between 15-20% of the standard premium and proves to be beneficial for people with luxury cars and expensive spare parts.
Engine Protection Cover- If you are staying in an area that is prone to flooding during the rains, this add-on cover is a must for you. This cover provides coverage against damage to the engine of the vehicle due to water ingression leading to hydrostatic lock. It also covers cases like leakage of lubricating oil and damage to the gearbox.
Return to Invoice Cover - This will make sure the insurer gets the original invoice value of the car including the registration and road tax paid along with the value of the car at which it was insured during the purchase of the policy. In short, this add-on covers the gap between the insured declared value and the invoice value of the car. This add-on is not to be used to claim for repairs and small damages. It is used to retrieve the financial loss of a stolen car or a car that has been damaged beyond repair.
Consumables Cover- If the vehicle meets with an accident, the insurers exclude the cost of consumable replaced such as nuts and bolts, engine oil, bearings and so on in standard motor insurance policy. If the insured opts for this add-on, the value of such consumables will be included in the claim amount.
Personal Belonging Cover - Nowadays, people travel in cars with their expensive gadgets such as laptop, tablet, smartphone, etc. These gadgets can also be damaged if the car is involved in an accident. Damage to such gadgets is not covered under a vehicle insurance policy unless you have a Personal Belonging Cover. This also covers the loss of other personal belongings from your car.
Personal Accident Cover - Opting for a personal accident cover will ensure that an individual gets adequate protection against any physical loss or disability during a car accident.
Accessories Cover - If an individual customises his/her car, one must ensure that the changes made to the car do not nullify the insurance. For e.g.: Modification made to the engine or mechanical setups usually do not come under the standard cover. Additionally, there is a limit to the value of customisation that can be insured under any policy. It is important to check with the agent on any such limits before giving the car that facelift.
Learn Some Basic words used in Motor Insurance:
Insured Declared Value- It is the market value of the vehicle. If it is high, the insurance premium will be high and vice-versa.
Age- With age one becomes responsible and is more likely to drive responsibly. A higher premium is charged from young drivers as compared to the older drivers. It is because the insurance companies assume that young drivers are more likely to engage in rash driving and old drivers are more likely to practice cautiousness while driving.
Claim History- If the applicant doesn’t file any claim during the policy year, they will be rewarded as bonus known as No Claim Bonus up to 50%. The discount is rewarded for their safe driving.
Now coming back to our topic, How to reduce premium on motor insurance:
Everyone wants to reduce the insurance premium. But Less insurance premium means less insurance coverage. When it comes to the reduced insurance premium, insurance experts recommend to not compromise on coverage.
If you compromise on coverage, you might save a few pennies on insurance premium but in case of a claim, you might end up spending more from your pocket. It will nullify the basic need of having car insurance in the first place i.e. financial safety of the car buyer.
Here is how you can reduce the premium for a motor insurance policy without compromising on the insurance coverage:
AAI or WIAA Membership- Having membership of Automobile Association of Upper India or Western India Automobile Association has its own perks. The insurance buyers who have AAI or WIAA Membership can avail a discount on their vehicle insurance
Multi-year policy - A multi-year policy covers the two-wheeler for a period of up to 3 years that will ensure coverage against legal liability for injury, death, owner-driver and optional personal accident cover for a pillion passenger, and property damage caused to a third party in the event of an accident. it reduces the premium upto 20%.
Don't claim small amounts - If you keep on filing small claims, you won’t be eligible for No Claims Bonus. As a result, you’ll have to pay a higher insurance premium.
No Claim Bonus (NCB) - Vehicle owners, who do not make a single claim during the term of the insurance policy, can avail a discount on renewal of the policy, known as No Claim Bonus (NCB). However, if an individual already has an NCB Certificate from the previous vehicle policy, which may have been sold, one can avail for the same in the new policy to get a discount on the premium.
Judiciously Opt for Add-ons - Though add-ons provide enhanced insurance coverage, they attract an enhanced insurance premium as well. So, opt for the add-ons that fulfil your insurance expectations. Don’t opt for it just because your friends have opted for it.
Raise Your Deductible - You can reduce your auto insurance premium by increasing the deductible component, which is what you pay when you make a claim.But, pay only as much as you can afford. If you pay too much, the purpose of insurance is defeated. Voluntary Deductibles - One could opt for the voluntary deductible in case they feel the cost of buying car insurance is expensive. Voluntary deductible lets an individual share the cost of repair in case of any claim.
Transfer Your Bonus - Auto insurance is linked to the person who buys it, not to the car.The agent may not tell you this. An advantage is that the accumulated bonus can be transferred to the new car you buy. So when you sell the car, retain the insurance in your name.
Compare Premiums - All general insurance companies offer online covers. Auto firms also provide `free' insurance, but don't be fooled. It is typically free only for the first year and you cannot customise it. Also, if you modify the car, the insurance will not cover it.
Anti-theft Aids a Must - It is critical to install safety features in your car. By buying gear lock, steering lock or an anti-theft alarm, you can also reduce your annual insurance premium by 5%. If you are linked with bodies such as WIAA, you can avail of special discounts.
Be Wise with the Coverage - A car insurance policy is typically a pre-defined set of benefits. Nevertheless, if your policy permits, then opt out of features you do not really need. This helps lower the car insurance premium to some extent.
From Old to New - An advantage of not making a claim is that the bonus accumulated is transferable to the new car you purchase. It is, therefore, wise to retain the insurance in your name even after selling your vehicle and ask the insurer to give you the no-claim certificate.
You can reserve this bonus even if you are not immediately buying a new vehicle. Whenever you buy a new car, transfer the existing policy to it and carry forward the no-claim bonus accrued over the years. This will help you reduce the car insurance premium rate for the new insurance policy.
With all these precautions and smart selections, you can reduce the premium of your motor insurance.
One more thing i want to share before you purchase motor insurance from a insurance company, you have to check the claim settlement ratio and claim impedance ratio of such company.
Please comment if you have any suggestion / query. And share it with others who are in need of this info.
Hello, welcome to my blog, Smart Investor. I'm Satyanarayana, a banker & blogger, Investor from Visakha -patnam, India. You can read more about SML here.
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