While buying the perfect car, we are attracted to the dazzling looks, vivid colours, and animated features. We often tend to overlook some critical aspects that will be fruitful in the long run. When investing in an asset like a car, we must learn to protect our investment. The majority of us know very little about car insurance and its myriad benefits.
What is Car Insurance, and why is it Important?
Car insurance, also referred to as auto or motor insurance, is an agreement between yourself and the car insurance company, wherein you pay a premium. In exchange, the insurance company protects against financial loss in the event of an accident or theft of your vehicle. The details of what is covered in your insurance policy vary depending upon the minimum coverage requirements and subsidiary coverage options you choose to include.
Coverage offered by car insurance may be as follows:
- Vehicle damages (yours or another driver’s vehicle, in the event of an accident)
- Medical bills, rehabilitation, or funeral expenses associated with injuries occurring during car accidents
- Property damages or other bodily damages
- Damages or loss due to natural calamity, actions like earthquakes, lightning, etc. that are out of your control
- Lawsuit charges, legal fee in light of a car accident
Some instances of no coverage are drinking and driving under the influence of drugs, vehicles being driven by an uninsured person, minor dents, deliberate loss or damage, and damage due to war or nuclear risks, mechanical or electrical breakdown.
Car insurance gives reliance and safety to drive peacefully. It accounts to be a saviour in times of mishappenings.
The process of choosing car insurance may seem intimidating if you are new to it.
Some essential factors to know while getting car insurance are as follows:
- There are two types of car insurance- comprehensive policy and third-party liability coverage policy.In India, it is mandatory to have auto insurance with third-party liability coverage included. However, a comprehensive policy has more added benefits and coverage of your vehicle as well. So you choose the option that suits your needs.
- In the case of a comprehensive policy, you must choose the add-ons wisely. There is a wide range of add-ons like engine protection add-on, No Claim Bonus cover(NCB), Zero Depreciation add-on, Road assistance add-on, etc. You must ensure you suit your requirements.
- In the car insurance jargon,Insured Insured Declared Value (IDV) is of utmost importance. It is the maximum amount the car insurance company will pay you in the event of a total loss claim. Knowing how the IDV is calculated is very significant for an auto-insurance buyer. The IDV is basically the present market value of the vehicle minus the depreciation on its parts that are not factory fitted, the cost of registration of the car, and its insurance premiums are excluded from the IDV.
The formula to calculate the car’s IDV used by insurance companies is as follows: Insured Declared Value = (Manufacturer’s listed price – depreciation) + (Cost of accessories exempted from the listed price – a depreciation of parts ) The premium amount you have to pay is directly proportional to the IDV of the vehicle.
- The premium significantly decreases with the age of the car. The value of your car changes every year because of the depreciation factor. While renewing your car insurance, you should not just look at the premium cost that the insurer offers you but also at the IDV. Higher the IDV, the better the insurance policy.
- Timely renewal is very detrimental. A lapsed policy is useless to you or the third party. You also lose the No Claim Bonus if you fail to renew the policy in time. The NCB is a discount that ranges between 20%-50% and is given to the insured while renewing a policy. Not renewing post 90 days of the policy expiration will lead to losing out on this benefit and a higher premium amount while renewing.
- After knowing about the complex process, you should also know about factors that insurance companies pay heed to. Despite having unique formulas to calculate the premium amounts, insurance companies weigh in some fundamental factors. These include the model and brand of your car and your driving record. They also check personal details like your gender, age, marital status, the place you live in, and credit scores.
- While thinking about the extravagant expenses of insurance policies, it is essential to know there are ways to lower your insurance bill, like raising your deductibles. A voluntary deductible is a limit chosen by you to meet a part of the claim from your pocket. Higher the voluntary deductible, lower the premium cost.
- Some insurance companies also offer discounts for low-mileage, more cars, safe drivers and students with good grades, etc.
- Installation of safety devices in your car further ensure your car’s security which is a good factor for any car insurance company. This way, you can get discounts on your car insurance premium. Membership of the Indian Automobile Association (IAA) also makes you eligible for more discounts on your car insurance premium in many cases.
Buying insurance is like any other purchase; one must be meticulous in choosing the right insurance company and comparing all factors. Despite the doubts and questions arising in your mind, you must remember that everyone makes mistakes. Car insurance solely follows the car and not the driver. The fallout from a car accident can be extremely tedious, and car insurance will save your time, avoid negotiation with the third party and not only protect yourself but others too. It will give you peace of mind and, in many cases, cover medical expenses which health insurance might not cover. Car insurance is a ‘use it or lose it policy ‘, and one must realize that it is better to pay now and save later. Most importantly, Drive safe!