How much Motor Insurance should you take? Here is the optimal premium to ensure car’s value is not reduced

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Published: November 28, 2017 3:36:03 AM

Any discount on the insurance premium, apart from the no-claim bonus, will mean that your vehicle’s Insured Declared Value or the current market value will be reduced and undervalued.

Motor Insurance, optimal premium, ensure car, ensure your vehicle, motor insurance cover, penalty for driving a car, Motor VehiclesAny discount on the insurance premium, apart from the no-claim bonus, will mean that your vehicle’s Insured Declared Value or the current market value will be reduced and undervalued.

While it is mandatory to buy third-party motor insurance cover, one must look at various factors to optimise the premium to be paid every year for a comprehensive policy. The penalty for driving a car without insurance is Rs 2,000.

Third-party cover
Motor insurance comprises own-damage and third-party insurance. Any vehicle that plies on the road needs the mandatory third-party cover under the Motor Vehicles Act and insurers will have to ensure that the policy is available at each of their underwriting offices. To arrive at the new third-party motor premium in April ever year, Insurance Regulatory and Development Authority of India (Irdai) analyses the data on accidents given by the Insurance Information Bureau of India. The rates are fixed by the regulator for all types of vehicles depending on the engine capacity and one has to pay the amount every year. No insurer can give any discount on the third-party premium fixed by the regulator. Then there is own-damage premium which is fixed by the company depending on their underwriting losses and this is where one can negotiate the premium with the insurer. Third-party liability is decided and awarded by the judiciary taking into account the age of deceased, earning capacity, wages, etc., which keep rising due to inflation and other factors. The Motor Vehicles (Amendment) Act has substantially increased compensation for accident victims.

Never look for huge discounts
Before the term of a policy ends, agents or insurance companies call customers offering them huge discounts for renewal. Never fall into their trap as any discount, apart from the no-claim bonus, will mean that your vehicle’s Insured Declared Value (IDV) or the current market value of the vehicle will be reduced and will be undervalued. Each year the insurance company determines the IDV, which is the maximum sum assured decided by the insurer which is provided on theft or total loss of vehicle. In fact, if the vehicle suffers total loss, IDV is the compensation that the insurer will provide to the policyholder and is calculated as manufacturer’s listed selling price minus depreciation. The IDV of the accessories which are not factory fitted, are calculated separately at extra cost if insurance is required for them.

Look at no-claim bonus
Every insurer offers no-claim bonus, which is discount on the premium at the time of renewal for not making any claim during the policy year. It is given only in the own damage part of the policy. If the policyholder does not claim any money even for minor repairs during the year, the premium will be lower. The trick is to negotiate on the no-claim bonus without changing the IDV apart from the normal depreciation.

In case of major damage, one must first get an estimate for the repairs. If the money to be spent on repair is lower than the amount you can save at the time of renewal through no-claim bonus, then it is better to avoid making the claim. Another way to protect your accumulated no-claim bonus is to buy the no-claim bonus protector add-on cover. With an additional premium, it will protect your accumulated discount percentage from going back to zero, even if you put a claim. For example, if you have accumulated no-claim bonus of 40% but file a claim, the add-on cover would make sure your no-claim does not become nil at the time of renewal, and reinstate it at 30%.

Repair at a network garage
Always take your vehicle for repair at a network garage of the insurer. In such places, the costs are negotiated by the insurer and is cashless. In fact, the customer can also save on the out-of-pocket expenses for the repairs in network garages. Also, opt for 24×7 roadside assistance for instant repairs.

Zero depreciation cover
In a nil depreciation add-on cover, no money is deducted from the cover for wearing out of any body parts of car, excluding tyres and batteries. The insurance company will pay the entire cost of body parts for replacement such as fibre, rubber, metal parts etc. However, it does not cover engine damage due to water ingression or oil leakage. Zero depreciation costs around 20% of the standard premium. The renewal of the cover can only be done up to five years of the age of the car.

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