Owning a car is considered a luxury in India. From an economic perspective, buying a new car is a matter of great significance. A prospective buyer may find himself in the confusion of what should be the optimum expenditure and which model to pick on his budget.
To help them ease their burden, financial institutions come up with a number of solutions such as hire purchase and car insurance.
In the world of financial insecurity, it is of extreme importance to buy a car insurance policy. Let us understand a bit about the car insurance policy and premiums associated with it.
Car Insurance and Premiums
Basically, there are two types of car insurance: thirty party liability and comprehensive policy. In the third party liability, the insurance policy refers to the financial cover provided to the policyholder if he happens to damage someone else’s vehicle or injures someone by his car. In the case of a comprehensive policy, the cover is provided to the damage done on the policyholder’s vehicle as well.
As it is the case with any insurance, the policyholder is required to pay premiums for a given policy. In regard to the premium, the method to calculate car insurance premium amount which a policyholder will have to pay depends on the type of policy he has opted for.
Calculating Car Insurance Premiums
Though the premium of a car insurance policy may differ on the type and amount of policy. The formulae, however, remains the same and that too an easy one:
Insurance Premium = Standard policy premium – (other discounts + no claim bonus) + add-on costs
Based on the aforementioned formula, you can calculate the car insurance premium you will have to pay for your car insurance policy.
Factors Directly Affecting The Premiums
There are certain factors which go beyond the direct mathematical formula of a car insurance policy. Some of them are:
- Insured Declared value, also known as IDV, refers to the maximum amount that a customer can claim for the car. Higher the IDV higher, higher the premium.
- The older your car is the higher is the premium which you will have to pay. The principle of depreciation applies to a car, just like any other commodity. The value decreases with time and so they are more liable to get damaged. Even expensive cars with rare motor products will have a higher premium payment.
- The geographical area where the car is purchased from also has a direct impact on the premium amount.
- No claims bonuses and anti-theft discounts are also the factors influencing the premium amount.
- Installing additional accessories which were not a part of the car prior to the purchase will also lead to higher premium payments.
Why Calculate Car Insurance Premium Beforehand?
There are certain advantages that you can enjoy if you roughly calculate car insurance premium to be paid for your car insurance.
- If you are aware of the premium you will have to pay, you can manage your finances in a better and disciplined way. You can even lay out a plan on your expenditure so as to balance your finance and premiums without compromising on either.
- Based on your financial position, you will not only be able to choose the best insurance option but also the car that will suit your economy the most.
- It also helps in the overall planning for the future.
Buying a car and maintaining it is not an easy decision. Given the ups and downs of the market, along with the security risks associated with the valuable assets, having a car insurance policy is a must. A prior and thorough idea of the different policies along with the premium needs to be paid will help you in taking the right decision.