Elements That Influence the Cost of Motor Insurance Policies

The Motor Vehicles Act of 1988 lays down the mandatory requirement for all vehicle owners to buy a motor insurance coverage. It is prerequisite to drive a motor vehicle legally in India along with having a valid driving license and vehicle registration. Further, it is common knowledge that vehicle owners need to comply the law by availing at least mandatory motor insurance policy. Hence, you cannot get past buying a vehicle insurance policy.

When selecting a policy, the premium is a primary determinant in deciding whether to buy a particular policy for most buyers. It must not be the only factor basis which the decision is made, cost-conscious buyers place more weightage on the premium as compared to other factors. Hence it is essential to know which factors impact the premium beforehand.

What is motor insurance premium?

The vehicle insurance premium is the price that is paid to purchase insurance coverage for your vehicle from the insurance company. Based on the different policy features, the premium changes. Here are the different elements that in combination have an effect on the motor insurance premiums –

  • Insured Declared Value

Insured declared value or popularly referred as IDV is the current valuation of your vehicle after considering the impact of depreciation. It is also the maximum amount that the insurance company compensates if things go down south, and your vehicle is damaged beyond repair. It is also paid for cases of theft too. Since the IDV impacts the risk that the insurance company must undertake, it has a direct impact on the premium too. Motor insurance companies let you adjust such IDV if you have bought a comprehensive plan and accordingly vary the premium. *

  • Type of insurance coverage

Next element that impacts the premium is the type of insurance policy. Motor insurance plans are available in two types—third party insurance and comprehensive insurance. Third-party policies are the most basic insurance coverage that you need to buy, and it offers protections against legal liabilities which may arise due to injuries to third person or even property damage. Being a minimum requirement, the premium of such third-party cover is regulated by IRDAI. Contrary to third-party plans, comprehensive policies offer coverage for not just third-party liabilities, but also own-damage cover. Thus, comprehensive plans have a 360-degree coverage and hence have a higher premium rate. You can visit the official website of IRDAI for further details. *

  • Add-on features

An extension to comprehensive plans is add-on covers. These additional policy features are optional but enhance the policy scope significantly. It helps to covers those events that are otherwise excluded from a comprehensive policy’s scope. Being optional in nature, they have a direct bearing on the premium amount. When you select add-ons, make use of a vehicle insurance calculator to determine its consequent impact on insurance premium. *

  • Vehicle’s use

The premium for motor insurance plans is also based on the usage of the vehicle i.e., for private use or commercial use. Since there is stark difference in the usage of a vehicle in both the above cases, the premiums differ significantly in each case. *

  • Registration location

Finally, the registering RTO also determines the premium rates for your vehicle. The regulator has defined two zones based on which the premium rates are charged. Zone A comprising of eight metro cities of Kolkata, Chennai, New Delhi, Mumbai, Bengaluru, Hyderabad, Pune and Ahmedabad whereas Zone B comprising of rest of the country. Thus, the location of registration of your vehicle has an impact on the insurance rates too. *

* Standard T&C Apply

These are some factors to remember when knowing how much premium is charged for your vehicle. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.

Post Author: Alison Lukas