Auto insurance is essential to protect you financially when you are behind the wheel. In addition, third party insurance coverage is mandatory for car owners under the Motor Vehicle Act 1988. Typically, most auto insurance policies are valid for one year. Thus, you must pay an annual renewal premium to keep the policy active. However, it is quite common for people to choose an inappropriate option to save on the renewal premium.
Saving on the renewal premium doesn’t necessarily mean buying the cheapest. Such plans are always attractive, but you should also check whether they fully cover the value of your car. Before we get into this part in particular, let’s get a few basics.
Auto insurance and its types
Auto insurance is coverage for the vehicle owner against financial loss (s) due to theft or exterior damage to the insured vehicle. Coverage is in accordance with the terms and conditions set out in the policy document.
As mentioned above, it is now mandatory to have auto liability insurance if you own a car. The policy fulfills your legal responsibility which may arise due to physical loss or damage to a third party.
Different types of auto insurance
In India, there are two main types of car insurance.
- Full auto insurance: As the name suggests, comprehensive auto insurance provides comprehensive insurance coverage. The policy covers damage specific to the insured vehicle as well as civil liability. The policy covers loss or damage due to natural disasters as well as man-made disasters. It also offers personal accidental coverage. Casco insurance is optional unlike civil liability.
- Third party insurance: This is a basic form of auto insurance in which it covers bodily injury / damage or loss caused to certain third party property or vehicles by the insured vehicle.
Exceptions under auto insurance
The insurance contract aims to cover emergencies or adverse effects. However, there are some exceptions. The majority of the insurance policy will not cover:
- Drunk driving accidents.
- If someone driving your vehicle is not of legal driving age.
- Damage caused by a driver without a valid / expired license.
- Act of intentional damage to the vehicle.
- Damage due to war, mutiny or nuclear risks.
- General aging due to the wear and tear of the car.
There are other exceptions which depend on policy to policy. You should read the policy document carefully to find out what your policy allows.
Car insurance supplements
Insurers usually offer add-ons in case you want to further improve or strengthen your existing coverage.
Typically, these auto insurance riders come with an additional premium and are intended to enhance the scope of existing insurance coverage. However, these additions are offered within a specific timeframe since the purchase of the vehicle and it differs from one insurer to another. Some of the common auto insurance runners are zero depreciation coverage, engine protection coverage, consumables coverage, etc. While opting for auto insurance riders, check the particular coverage and confirm if it meets your specific needs.
Before we get to the issue of reducing your auto insurance premium, let’s take a look at some of the key factors that affect the insurance premium.
Factors That Affect Your Auto Insurance Premium
Several factors influence the amount of the premium you will be charged for your auto insurance. Some of the key points are shown below:
- Insurance type: If you choose to purchase fully comprehensive auto insurance, you will be charged a higher premium amount. The reason is that the policy aims to provide all-inclusive insurance coverage. As the self-contained third party insurance policy offers standard coverage, it has a lower premium which is set by the regulatory authority.
- Make, model and variant of vehicle: The premium of the insurance policy differs for different types of vehicles depending on its make, model and variant.
- Regional transport office (RTO): In India, car insurance premium is calculated based on the place of registration of the vehicle. Indian law categorizes locations as:
- Zone A
- Zone B
Metropolitan cities such as Delhi, Mumbai, Chennai, Bengaluru, Pune, Ahmedabad and Hyderabad fall under zone A. The rest of the country belongs to zone B. The amount of the bonus may change according to the zones defined by the RTO.
- Declared insured value: The value of your insurance policy depends on the declared insured value, i.e. IDV. IDV is the market value of the car or simply it is the maximum insurance coverage that the insurance provider can offer. Thus, when you buy a new car, the declared insured value is higher because it is calculated on the basis of the price displayed in the showroom. However, the IDV does not remain constant and depreciates over time.
- Age: Insurance companies may charge higher premiums for older vehicles, assuming these vehicles require constant servicing and maintenance.
Following that, here are some simple ways to reduce the cost of renewing your auto insurance.
Ways to Lower the Cost of Your Auto Insurance Renewal Premium
● Understand your needs
There are many auto insurance policies in the market with varying premium rates. Naturally, it makes sense to research different auto insurance policies to get the premium rates that are favorable and provide adequate coverage. Most insurance companies have active websites, and there are several online insurance shopping sites for your assistance.
Generally, these online insurance distribution platforms are easier to use than traditional offline methods. They also help you find the best premium rates quite easily. When selecting the cheapest price, one should also check the vehicle value (IDV) offered by the insurer. Sometimes insurers offer a lower IDV, which causes the premium to drop but could hurt you if your car is completely lost or stolen.
Just don’t go for the cheapest option, as this may not provide you with adequate coverage. Research thoroughly and select the appropriate vehicle value before any comparison.
It is recommended that you carefully consider the various optional coverages (add-ons) offered with your basic car insurance and decide if you really need them, as they tend to increase your total premium considerably. Additionally, you should always read the fine print of any insurance policy that you purchase.
● Use the no-claims bonus (NCB)
The main goal of auto insurance is to save money on expensive repairs and damage to the vehicle. However, submitting requests for small amounts could defeat this objective. For the smaller of the claims, you lose the benefit of No Claim Bonus or NCB when renewing the following year. This is the bonus accumulated for each “no-claim” year. Insurers offer an NCB (or discount) of up to 50% on the Personal Damage Renewal (OD) premium for not making a claim during the term of the policy.
The benefit offered when renewing the first year is 20% reduction and increases after each successive period up to 50% for five consecutive loss-free years. So, if your auto insurance needs to be renewed, check the accumulated PNE and report it when you purchase the insurance policy.
In addition, an incorrect declaration of the NCB could lead to a reduction in your premium, but will create complications during your next claim settlement. So be honest and claim the discount you are owed for your good behavior behind the wheel.
● Opt for voluntary franchises
A deductible is the part of the claim that you choose to pay out of pocket voluntarily. With a voluntary deductible, the insurance company has reduced liability to pay at the time of the claim.
Thus, the insurance company allows a greater reduction on the amount of the own damage premium according to the voluntary deductible chosen by the policyholder. However, please note that this also reduces the amount of claim you will receive.
● Renew the policy before it expires
If the current auto insurance policy expires, the insurance company may refuse to offer discounts or a PNE if you request a renewal after 90 days of expiration. Thus, it is essential to keep track of the expiration date of the policy and renew it in advance. You can ask your insurance company’s service desk to send you a reminder before the expiration date.
Moreover, you can mark the date in your calendar to receive a timely reminder and renew the policy without fail.
● Online renewal
To renew your auto insurance, you have two options: online and offline. It is often advisable to renew the policy online from the insurer’s website. In this case, you take out the policy directly from the insurer and avoid intermediaries and their commissions compared to offline mode.
In addition, it is practical, easy to do, and gives you better visibility on the chosen font.
These are different ways to reduce the amount of the renewal premium on your auto insurance policy. You can choose one or more of the methods mentioned above to get the lowest possible premium rates. However, the key is to do thorough research before choosing the right policy.
You have to understand that the cheapest does not necessarily mean the best. On top of that, there is no alternative to safe driving practices. A safe driving habit with good insurance will certainly help you lower your premium amount in the long run.