The third-party premium for vehicle insurance is set to go up after a gap of two years from June 1.
A third-party insurance cover that covers liabilities arising due to third-party accidental damage, injury or death, is mandatory for anyone who owns or drives a motor vehicle in the country. The third-party insurance premium for vehicles in each segment is decided by the central government or the Insurance Regulatory and Development Authority. Hence insurance companies won't be able to make any changes in this amount.
At present, one has to pay the third-party insurance premium for five years in case of a two-wheeler and for three years in case of a car upfront when you buy the vehicle.
The vehicle insurance premium is one big expense for vehicle owners every year. The third-party insurance premium forms just one part of this amount. The full insurance cover will also include the premium for a comprehensive policy that will cover own damage due to accidents, natural disasters or theft. Most of the time this component of the insurance premium is higher than third-party premium. Though the comprehensive cover is not mandatory as per law, it is a necessity. When you are buying a vehicle on loan, you can't avoid a comprehensive cover. Customers get some leeway in deciding the premium for the comprehensive cover. If you are careful, you can reduce your overall vehicle premium.
Here are some tips:
No-claim bonus
Since your vehicle’s expenses increase every year, including third-party insurance premium, you can take advantage of the no-claim bonus feature to reduce the comprehensive insurance premium. For every no-claim year, your insurer will give you a no-claim bonus and you get a discount when you renew your policy. NCB starts with 20% and goes up to 50% in the sixth year.
The first and easiest way to get NCB is to drive carefully and avoid circumstances that may lead to a claim. Secondly, try to avoid making a claim for small damages. Any small claim may lead to loss of NCB. For example, if your NCB is Rs 6,000 next year and you claim insurance for a Rs 2,000 repair work, it will result in a loss for you.
The NCB is not for the vehicle, it is for the vehicle owner. Hence, even if you sell your vehicle, you are entitled to the benefit. And, you don't lose your NCB even if you change the insurer.
Voluntary deductibles
A deductible is part of the claim and is to be paid by the policyholder before the insurance cover kicks in. A compulsory deductible amount is fixed by the insurance authority and has to be paid compulsorily by the policyholder whenever a claim arises. In voluntary deductible, the share of the claim will be decided by the vehicle owner. Higher the voluntary deductible, lower the car insurance premium.
For example, if your compulsory deductible is Rs 1,000 and total claim amount is Rs 10,000, your insurer will pay Rs 9,000 and you have to pay Rs 1,000. Compulsory deductible won't affect the premium.
If you choose to pay a higher amount as deductible and are ready to pay a higher amount when a claim arises, it would reduce the premium. However, the policyholder should factor in affordability and fully understand from the insurance company how much reduction this would result in the premium.
Add-on covers
Add-on covers help you to obtain additional policy coverage by paying a little extra amount. Each add-on will have a special focus area. The most well-known among the add-ons is zero depreciation. It is also known as nil depreciation or bumper to bumper cover. Like every other asset, the vehicle value also decreases with every passing year. For every component of the vehicle a depreciation rate has been fixed. For example, your vehicle's fibre glass is damaged in an accident and the cost of its replacement is Rs 20,000. In a standard motor insurance policy, the insurer will pay you only Rs 14,000 after 30% depreciation. However, if you have a zero-dep cover as an add-on, you would get the full Rs 20,000 from the insurer (or the maximum percentage mentioned in the policy).
Going one step ahead, the return to investment add-on covers the cost of the vehicle, road tax and registration too. You can buy this only while purchasing a new vehicle.
Other popular add-ons include roadside assistance, medical cover and engine protection, among others. Since you have to pay an extra amount for each of these add-ons, your premium goes up considerably. Hence, evaluate their necessity and decide. At the same time, reducing the premium by not opting for necessary covers won’t be prudent.
Third-party cover for old vehicles
The value of the vehicle depreciates with time. Hence, if your car is more than 10 years old, it is better to opt for only a third-party cover. Because, after factoring depreciation, the claim amount provided by the company will be meagre. Which means, you may end up shelling out a big part of the bill for every repair or maintenance work. In this case, there is no need to pay a big amount for a comprehensive cover.
Pay for use
In ‘pay as you drive insurance’ a premium is charged based on the usage of the car. Currently, it is being offered on a pilot basis. This is offered by a few insurance companies in some cities. The policy aims to fix the anomalies in charging the same premium without considering the usage of the car.
* Carrying out modifications on the vehicle will result in a rise in the insurance premium. But, if the insurer is not informed about modifications, the company could reject your claim.
* You can compare the policies offered by different companies and decide. You have the freedom to buy or renew a policy from any company. There could be variations in the premium amount and the insured declared value (IDV) of the vehicle from company to company. Beware of companies that try to offer a lower premium by reducing the IDV. Don't fall for such tactics that could result in little benefits.
