Car Insurance: Figures And Facts

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The process of car insurance premium calculation isn’t a transparent one. The insuring company fixes a premium and then it is adjusted for any no-claim bonus or discount that the insurer is willing to offer. Let us see some of the major parameter that apply in calculating motor insurance. For starte, motor insurance policies are indemnity policies which compensate you for up to an amount (and no more) for financial losses that you have suffered on the vehicle. The maximum amount of insurance is known as insured declared value, or IDV, and is the value that the insurance company places on your vehicle to estimate its worth at the time you apply for motor insurance for any loss arising from theft or accident. So, if you suffer total loss in an accident of your four-year-old car that is worth Rs 5 lakh at the time of the accident, under no circumstances will you be compensated for more than Rs 5 lakh. When you buy a new car and are getting insurance for it, the IDV is calculated on the basis of the price of the new car, i.e. its ex-showroom price.

If you have a car for which you are renewing the insurance, the IDV will be adjusted for any operational wear and tear that the car has experienced, or in technical terms, the IDV is adjusted for any depreciation that it has undergone for a vehicle of its age. If you have any accessories like a special music system or speake in your car, the value of these items that are additional to the price of the car are added to the IDV and adjusted for any depreciation that these items might have undergone. For a car that is more than five years old, the IDV is determined on the basis of an undetanding between you and the insurer after making adjustments for the depreciation schedule. Note that IDV is used only for a comprehensive insurance policy and not a third party insurance cover.

For third party insurance cover, an important parameter which determines the insurance premium is the size of the engine (cubic capacity or cc). The premium amount is the same for a new car as for an older car, because the premium is a function of the engine size, and not the age of the car. Engine capacity is however not a criterion used for calculating premium for a comprehensive cover. The table below shows the rates related to the third party cover premium amount according to the engine size. The higher the cc, the higher will be the premium. These figures are the basic minimum amounts stipulated by the Indian Motor Tariff Act. There might be an additional amount to pay above this minimum for third party coverage. These minimum amounts are the same, irrespective of the brand or the age of the car. The place that your car is registered at greatly affects the amount of motor insurance premium you pay. [PAGE BREAK]

India is divided into two zones, A and B, depending upon the kind of risks that motor vehicles in these areas are exposed to. Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, and Pune fall in Zone A, and vehicles in these cities are considered more vulnerable to theft and accident. The rest of India falls into Zone B. Zone A cities have a higher motor insurance premium. As your car ages, it loses value due to various reasons, besides wear and tear. There is a set schedule that applies to vehicles that adjusts their value based on how old the car is, independent of the brand of the vehicle. Insurance companies follow this schedule to decide the premium. However, for vehicles that are older than five years, the insurance company and you will mutually arrive at a valuation of your vehicle, which will take into account the condition of the vehicle and the depreciation schedule. If you want only a third party policy then the tabled depreciation schedule does not apply since premium being decided is based upon the engine size only.