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Learn How Car Insurance Premiums Vary Based on Vehicle Use
Aug 17, 2022

Learn How Car Insurance Premiums Vary Based on Vehicle Use

A new car’s purchase comes with a certain set of requirements such as registration and insurance. While the registration bit is handled by your auto-dealer, you have an option to decide upon the insurance policy. The dealer generally has tie-ups with a couple of insurance companies, but the options provided to you will usually be limited. When you choose a car insurance policy on your own, you have the freedom to select any insurance plan among the plethora of alternatives available in the market. Hence, it must be decided upon carefully. Several factors impact your car insurance premiums. One of the many factors is the use of your vehicle. Cars can essentially be purchased for private use or commercial use. Different distances will be traveled in both types of use during its life. Hence, the risk that the insurance company undertakes also differs significantly. Private cars are generally used as personal cars or as family cars that are driven a few lakh kilometers before being sold or scrapped. However, commercial cars are used as taxis and tourist vehicles. In both cases, the long distances are covered before being finally retired or sold. Moreover, the risk faced by the different types of use, for instance, an engine seizure, is high for commercial cars since they are used more ruggedly. All these different factors contribute to higher insurance premiums. Along with the vehicle’s use, premiums also vary based on the following factors:
  1. Type of Policy

The type of insurance policy is a significant factor that impacts the premium calculation. There are two types of car insurance policies that are available — a third-party policy and a comprehensive policy — both of which provide different coverage. Since a third-party policy’s coverage is limited to legal liabilities payable to third persons, the car insurance prices are lower as compared to a comprehensive policy that covers for own damages too. *
  1. Vehicle’s Insured Declared Value (IDV)

The IDV is a critical component that you come across when selecting a comprehensive insurance plan. It is the maximum amount that the insurance company pays in the event of total loss or damage. So, it is the maximum risk that the insurer will underwrite. As the underwriting risk for the insurance company increases, the car insurance price increases in tandem. Thus, setting the right IDV when buying a car insurance policy is crucial. *
  1. Add-on Riders

Add-on riders are optional features that a comprehensive policy offers. Using these additional covers, the limitation in coverage of your insurance policy can be overcome. While insurance companies offer a variety of add-ons, you must consider buying those that add significant value to your car insurance coverage. *
  1. No-Claim Bonus (NCB)

No-claim bonus is one factor that lowers your premium amount by offering a concession in your own-damage premium. Since one does not require to raise an insurance claim each year, the insurance company passes on the benefit of such unclaimed insurance cover by way of NCB. This way, accumulated NCB benefits help lower the insurance premiums. *
  1. Registration Location

The location of registration of your car also impacts the premium amount. Insurance companies classify premiums based on two zones, where Zone A consists of eight metro cities while Zone B covers the rest of India. So, depending on the registration location, the premiums also vary. * *Standard T&C Apply While there are different types of insurance covers you can buy, do not skip on a third party car insurance, as it not only safeguards against legal liabilities but also ensures compliance with the law. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

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