How to choose right Car Insurance for your car

22-Dec-2020

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Selecting right car insurance as per your needs

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Insurance today is one of the most necessary requirements today in the world which is becoming highly unpredictable day by day. Sure enough, car insurance is one of the most important accessories for your car that you simply should not avoid. To safeguard yourself from any untoward incident, car insurance is a must.

There are many factors which come into play but broadly, they can be classified into two categories: Product and Service

These two categories decide the cost of the premium for your car and then based on the condition of your car and your personal driving preferences per vehicle, it is adjusted to the final amount.

So, what does a car insurance plan insure you for?

The above chart is an example of quotes from different car insurance companies for vehicle X. The value of the car is derived by the Insurer’s Declared Value (IDV) of your vehicle which is approximately equal to the market value of your vehicle. This amount is the maximum amount that the insurer can pay you in the case of any claim. At the time of purchasing insurance for a brand new car, the IDV is calculated based on the showroom's listed price. However, the IDV of your car is not constant. When you renew your motor policy after a year, your IDV will decrease because of the rate of depreciation that is applied every year on your car.

Now, you see the term OD premium. Here OD stands for Own Damage. You can check the OD IRDA grid as per the capacity of your car.

Many car users buy car insurance (Third Party Insurance by default) for a long term that takes care of the damage caused by your car to any other third-party vehicle. This is a basic insurance plan that is compulsory for all cars driven in Maharashtra and India. This mandatory insurance plan is called third party insurance. However, if you wish to cover damages to your own car as well, you can go for a separate OD insurance as well. Therefore, you can opt for third party insurance from one insurer and OD insurance from another insurer as well. In the above example, we are buying both from the same insurer.

Let’s understand No Claim Bonus (NCB). No claim bonus is the discount offered by the car insurance company in the premium you pay for the next year if you as a car user have not made a single claim in the term of the car insurance policy. Basically, if you are a good driver, the addition of No claim Bonus is a testament to that fact.

However, if you have missed paying the insurance premium for a year, your insurance will lapse and you will have to reapply. Reapplication undergoes car inspection and you lose the entire No claim bonus amount accumulated over the years. Post the NCB deduction from your premium, the insurer can offer you a special discount as well. After, all the deductions, you will arrive at the Net OD premium. This differs from company to company.

Now, the insurance company will assess the costs per person that it will cover in the case of any untoward accident. These divisions as mentioned pay for any injuries and medical costs for the driver and passengers. Here, the amount that covers the cost gets divided among the number of passengers mentioned in the policy as present in the car at the time of an accident.

You can ask the insurance company to customise the premium/ liability per passenger depending on the number of people who usually travel in your vehicle as well as the number of drivers per vehicle. These costs can be toggled allowing you to get higher cover per passenger and driver as per your travelling habits.

Further, you might have observed a field that reads legal liability. Mandatory by law, this cover protects you against the legal liability of accidental damages that can result in permanent injury or death of a third party. It also covers any damage caused to any surrounding property.

Finally, adding the two (OD premium and Liability premium) gives you your gross premium with GST applicable @ 18%.

When our team gets asked, which insurance company should one go for? We always reply saying that first, you should understand the kind of cover you would like to go for as explained above. Also, the selection of any insurer lies mainly in their claim settlement ratio which shows you the percentage of claims they approve and settle out of the total number of claims they receive.

Further, there are many hidden charges that will be charged on account of different occasions which differ from company to company and agent to agent. Also, there are many riders available with the car insurance policies offered by various companies but in our humble opinion, a plain OD + Third-party Insurance is enough to take care of your vehicle, your loved ones and also in case of any unfortunate event, the respective third party as well.

So, to answer the question, it is very important to understand how a car insurance policy works and assess your own requirements first. Post that, based on gross claim settlement ratios and insurer service reviews (many of them are available in the public domain) will help you make the right decision. If you face any difficulty in understanding any of the technical jargons, feel free to reach out to our expert team.