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News & Views

Monday, Jan 31, 2011

How to lower your car insurance premium

[Source : The Economic Times]

When you are rearing to buy a new car, insurance premium is a remote consideration in deciding the model. However, the premium can vary markedly depending on several factors, such as the car model, year of manufacture and fuel option, even unlikely ones like fuel tank, safety devices and accessories. The difference in premium can range from 2.5-15%.

Then there are cars that insurers are loath to covering. “Tata Sumo, Chevrolet Tavera and Toyota Qualis have higher premiums as these may be registered in individual names, but are often used for commercial purposes,” says an insurance broker.

Here are some factors that you should consider before getting into the driver’s seat.

Fuel option : The premium for cars that run on petrol is lesser than for those that run on diesel, compressed natural gas (CNG) or liquefied petroleum gas (LPG). The reasoning is that a person who opts for diesel engine has higher usage and wants to keep the fuel cost down. “A diesel car’s premium is 10-15% higher than a petrol car’s. The rates are similarly high for the cars running on CNG or LPG,” says Vijay Kumar, president (motor insurance), Bajaj Allianz General Insurance.

It’s not just the fuel but also the fuel tank that can raise the premium. The cars where fuel tanks are made of fibre are charged 3-4% higher premiums.

Safety devices: Insurers prefer gear and steering-wheel locks, air bags, sensors and other anti-theft or life-saving devices. These have to be approved by the Automotive Research Association of India.

Lower premiums also kick in if cars have advanced anti-theft features. “There is a 10% discount on Maruti models because these have iCAT systems in place. Hyundai has it in some of its models and so does Mahindra & Mahindra’s Scorpio,” says the motor insurance head of a private insurer.

Insurers also look at other parameters such as resale value. Sports-utility vehicles (SUVs) are coveted by thieves because of their high resale value. SUVs are used as public transport in many parts of the country. “If you own an SUV in north India, your premium goes up by nearly 20%,” says Rahul Aggarwal, chief executive officer, Optima Insurance Brokers.

Accessories : Many owners fit their cars with top-end audio systems and lights. These draw higher premiums.

Spare parts : Some cars may be priced low but could invite a higher premium. This is because of sparse or expensive spare parts, which could burn a hole in the insurers’ pockets. “Some manufacturers are willing to take a hit in the short term by pricing the cars aggressively in the Rs 4-5 lakh bracket even though they have a higher imported content. The repair cost of these parts is higher. On the other hand, low-end cars have more ‘local’ content and so come with a 10-20% lower premium,” says a car dealer.

Car model : Entry-level cars, such as Maruti Alto or Hyundai Santro, are usually used by young people, so insurers associate more risk with these. “They prefer Honda, Mercedes or BMW,” says Aggarwal.

Car colour : Though internationally some insurers use colour as a factor in deciding premium, in India, the practice is still to catch on. So why should a person driving a red car pay more than one driving a white car? “The colour is just a proxy for buyer behaviour. So a red car is more prone to accidents than a white car as the person who likes red is considered an aggressive driver,” says Sanjay Datta, head (customer service), ICICI Lombard General Insurance.

Profile of owner : Even an owner’s profession and lifestyle come into play. Insurers prefer owners in more ‘respectable’ professions and who those who are more cautious. Insurers think that if you attend safe-driving seminars organised by, say, Automobile Association of India (AAI), you are more likely to take better care of your car. “They offer a discount of 5% to car owners who are members of AAI. Similarly, professionals such as doctors and chartered accountants get a 5% discount,” says Optima’s Aggarwal.

Of late, companies have started considering age as well. Owners above 45 years old are considered careful drivers and, hence, pay a low premium, while those below 20 years pay a higher one.

Before you bargain : “Remember that lower premiums may mean reduced insurance cover. For instance, some companies had discontinued the cover for damage caused by floods. Only when the floods hit Mumbai, did car owners realised that flood cover was not in the policy,” says Mukti Adwani, a car insurance consultant.

You can also gain if you inform the insurer about any no-claim bonus on your old car’s insurance policy. “The no-claim bonus on an old car can be transferred to a new policy with the same insurance company,” says MD Garde, who was formerly a general manager at New India Assurance.

To make the most of your car insurance, avoid small claims, because you could lose out on the no-claim bonus.

So before you press the accelerator and drive off, read the fine print. Know how much insurance cover you have for your car. It’s better to be safe than sorry.

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