How to spend less on auto insurance

For most car owners, the first insurance cover they buy is the one offered by the car dealer and they do not take the trouble of checking out what else is on offer as many dealers offer this cover virtually free.

These covers are similar to those offered by an auto insurer but are priced in such a manner that the dealer pays the premium amount instead of the customer.

Often the customer does not realise that the dealer is seeking a huge commission on the renewal premium.

Which means that when you renew your auto insurance the following year, the dealer gets a huge commission from the insurer company.

Hence, a customer should look for premium deals available with insurers instead of just accepting what the agent/ car dealer offers.

Many company websites offer online premium quotes. You can also refer to various sites which provide premium deals in line with your requirements. This is important since it may help you with lower premium payments.

Owing to intense competition, the premiums have decreased by almost 50 per cent in the past two years. The insurance value has dropped to 1.5 per cent of the car value as against 2 per cent in 2008. But insurance companies have witnessed huge losses on this portfolio for the last one year. Thus, they have slowed down in certain segments.

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What cover does your car insurance offer?

Car insurance has two categories: own damage and third party liability (when you cause damage to other person's life or vehicle). Third-party liability insurance is mandatory. However, comprehensive insurance that includes third party cover, theft, personal accident and liability is more popular among car owners.

If you possess a car with authorised fuel system like petrol/diesel or CNG/LPG, you have to get the CNG/LPG kit insured separately. The premium would be nearly 4 per cent of the kit value. An additional personal accident cover for your driver would cost you around Rs 25-30 more. If you want to cover other passengers to the extent of Rs 2 lakh, the premium would go up by Rs 500-600.

The IDV and the premium amount

The sum assured or the insured's declared value (IDV) is calculated by subtracting depreciation from the car's price. IDV is used to estimate your vehicle's premium amount.

Other factors that determine the premium amount include the city of registration, the period of coverage, cubic capacity of the vehicle and the claims history. Better the claims history, lesser the premium.

Careful drivers are awarded with no-claim bonus (NCB), which goes up to a discount of 50 per cent for the fifth claim-free year.

How to use your NCB with another insurer

You can carry forward the NCB while switching insurers. All you need to do is sign a declaration letter and produce a copy of the renewal notice of the old insurance company, which would state your eligibility for the NCB. You cannot trick your new insurer on claims history as the new insurer would validate important information with the old one.

Within the next six months, the general insurance council will roll out a motor insurance bureau that would keep a track of all the car owners and their claims history. Claim settlement is important.

Claims in car insurance are around 35 per cent, far above than that of home insurance at 2-3 per cent. Therefore, a customer should consider the claim settlement record of the insurance company before deciding on the cover.

In addition, s/he should also check if the insurer has a good network of garages since it is vital for cashless insurance.