There are various factors that affect the premium of a car insurance policy, but premium is not the only thing to be concerned about while opting for or renewing a policy. Also, third-party motor insurance cover is mandatory in India, as per the Motor Insurance Act. However, that is not the only cover that you should have for your car.
Usually, one gets the first motor insurance policy from the car dealer, which is bought in a haste. However, during the first renewal most policyholders analyze the need and then look for a proper policy.
Here are some things to take note of while opting/renewing a car insurance policy;
No Claim Bonus (NCB)
NCB is a discount that generally ranges from 20 to 50 per cent on the premium payable. It cannot be claimed while buying a policy but has to be earned by maintaining a claim-free record. It is a discount rewarded by the insurer to the policyholder, which is only available on renewal of the policy when no claim has been made for in the previous year of the policy. When the new comprehensive motor insurance policy is bought by the policyholder, he/she is not normally eligible for any NCB discount on the premium paid. A policyholder on the first renewal of the policy is generally entitled to a no claim bonus of 20 per cent provided there has been no claim during the past year. With every claim-free year, this discount increases steadily to a maximum of 50 per cent at the end of 5 claim-free years.
Note that, the NCB belongs to the policyholder and not the car. Hence, you can also retain your NCB if you switch to another insurer at the time of renewal of the policy or if you replace your existing car with a new one.
Own Damage Premium (OD)
While looking to buy car insurance, policyholders have to choose from 2 options: a limited cover plan or one with extensive car insurance coverage. The limited cover plan is the liability-only plan or third-party liability insurance. This comes with the disadvantage of covering only third-party liability and protects the car owner from legal liabilities arising out of an accident, whereas does not offer damage protection to the insured vehicle itself.
Own damage cover in car insurance safeguards the insured vehicle from damages, unlike Third-party insurance. Some companies also term it as collision insurance or self-damage insurance. This cover includes specifically two coverage, damage to the insured vehicle in accidents or in theft and total loss of the vehicle. Though third-party liability insurance in India, is mandatory, own damage cover is not mandated by the law, however, it is a very useful cover to have your possession insured. Own damage cover provides coverage for accidental damages, damages while in transit via rail, road, theft and vandalism, natural calamities such as hurricanes, landslides, floods, man-made disasters such as riots, strikes, personal accident cover to the owner or driver of the vehicle.
Compulsory Personal Accident
A Personal Accident insurance policy provides coverage to the policyholder in the case of permanent disabilities and provides financial support. This insurance policy provides cover for both minor and major accidents, along with total or partial disability. It also provides cover for temporary disabilities.
Along with the third-party cover, the personal accident covers were also mandatory, in India. However, effective from 01-January-2019, IRDAI has introduced changes to ‘Compulsory Personal Accident Cover’ for vehicle owners with a valid driving license. Now policyholders will be able to opt-out from buying this cover with his/her motor insurance policy, only if he/she fulfills the other conditions laid down by IRDAI. One needs to hold a personal accident insurance policy with the minimum sum insured of Rs 15 lakhs, or need to have a motor insurance policy of another vehicle which is inclusive of the ‘Compulsory Personal Accident cover’ with the sum insured of Rs 15 lakhs.
The amount of insurance premium paid to the insurance company by the policyholder depends on a variety of factors, such as type of policy, tenure, the sum insured, type of coverage, type of car, the area where the policyholder lives, the likelihood of a claim being made, among other factors. The greater the risk associated with an event or a claim, the more expensive the insurance premium becomes.
For instance, you might have to pay a different premium the following year after buying the policy than the premium for which you bought the insurance policy, as numerous factors affect the premium of the policy, and you end up paying a higher premium while renewal. Even though insurance companies follow different processes for calculating policyholder’s car insurance premium, you can stay clear of to avoid an increase in premium by buying/renewing a policy online, not making small claims (NCB), avoid lapsing your policy, IDV, etc.