As the saying goes, “The early bird catches the worm”, making a timely move can help us save money. The same applies to Car insurance too. Read on to know how.
Be it buying gold before the festive price rise or investing early in an IPO, we know we will get guaranteed savings and great value by taking a timely decision. And inflation is a bitter truth that we all have to face. Because of which we end up paying more every year for goods and services that we use in our everyday life. Car insurance also gets hit by inflation every year and the price rise comes into effect from 1st April.
This article will help you to understand how renewing your Car insurance before 1st April 2018 can help you to save substantially on Car Insurance. Let’s understand step by step Car insurance premium calculation.
What are the components of your Car insurance premium
Car Insurance premium is based on the following factors:
- Types of cover - Third Party or Comprehensive Insurance
- Add-ons – Extra protection that can be attached to base policy for extra premium
- Deductible – Percentage of amount you have to contribute from your own pocket during a Car insurance claim
- Any other applicable discount – For example, fitting of anti-theft device approved by ARAI will give you up to 2.5% discount on Car insurance premium
Car insurance premium rates will depend on all the components mentioned above. The premiums rates will change based on the optional components that go in your Car insurance cover. The fixed component such as the base rate like Third Party cover is fixed for the entire year and if there is any change to this in the next year, you will have no option to save any money on it.
Why is Third Party Cover a fixed component of Car Insurance
Aha - Good question! Third Party Cover is a fixed component of Car Insurance cover as it has been made a mandatory requirement under the Car Vehicles Act, 1988 for all Car vehicles plying on Indian roads. This act was introduced to ensure fair and rightful compensation for the accident victims for damage to life and property. There is no limit of coverage to injury or loss of life for the third party involved in an accident but property damage is capped at INR 7.5 lakhs.
Why do I have to worry about the rise in Car Insurance premium now
Third-party Car insurance premium rates are revised by the IRDAI every year. This revision takes place in the starting months of every year and gets implemented from April every year.
For example below is a table displaying increasing trend of Third Party Insurance over the last three years.
| Vehicle Class | TP 2014 (INR) | TP 2015 (INR) | TP 2016 (INR) | TP 2017 (INR) | Yearly Increase Ratio on TP |
| up to 1000 cc | 1,129 | 1,468 | 2,055 | 2,055 | 26% |
| 1000 cc to 1500 cc | 1,332 | 1,598 | 2,237 | 2,863 | 25% |
| Above 1500 cc | 4,109 | 4,931 | 6,164 | 7,890 | 20% |
How is Car Insurance Premium calculation done
IRDAI (Insurance Regulatory & Development Authority of India) evaluates and changes the Third Party Car Insurance Premium Rates on an annual basis. This power is vested upon IRDAI under Section 14(2) (i) of the IRDA Act 1999. The changes done are implemented from 1st April of Every Calendar Year.
P(t) = C1(t) * CII (t-1) + C2(t)
- P(t) stands for Third Party Premium for the year t.
- CII (t-1) is the C.I.I. (Cost Inflation Index) for the year (t-1) as notified by C.B.D.T. (Central Board of Direct Taxation).
- C1(t) & C2(t) are factors, for the year t, derived upon by average claim amount, claim frequency & expenses incurred in providing those services. It differs for different vehicle class.
What are the basic reasons for the increase in premium
Deriving the IRDAI premium calculation, there are two basic reasons for the rise in Third Party Premium Calculation.
Inflation – Every year cost of labour, repair, spare parts also increases. When a claim is made for a repair, the cost will be more than what it was a year ago. This increase in cost affects the premium of Car insurance.
Number of claims – Every year the number of vehicles are increasing on the road. With the increase in vehicles, the number of accidents are also going up which means number of claims. The ratio of claims needs to be worked with the amount of money collected. This calculation leads to increase in overall premium.
Save the Price Rise on Car Insurance by Renewing before 1st April 2018
Don’t wait for your existing Car insurance to expire. You can renew your Car insurance 45 Days in Advance. By renewing your car insurance before 1st April 2018 you can lock in the old premium amount and won’t have to pay as per the price hike which will be effective from April 2018. So, by renewing early you are not only saving a good amount on Car insurance but will also be eradicating the risk of forgetting to renew your current Car insurance on time.
Also Read: A Complete Guide to Buying a New Car
