Car insurance rates fall, but beware the fine print

Car insurance rates fall, but beware the fine print

So a call comes that says your car insurance policy is up for renewal and one particular insurer is offering you up to 50% discount and another is offering 60%. Basic economics will swing your decision for the latter, but before you sign on, do compare rates. Chances are there is another insurer who will give you a still cheaper rate. Says Rahul Aggarwal, CEO, Optima Insurance Brokers: “The distributors who give unimaginable discounts do so by inflating the premium and then offering a higher discount. Do not buy into these discounts."

Apart from very obvious deception, there are stories about cheaper rates coming at the cost of a lower insurance cover, something that the agent does not tell you. Here are four things you must do to get a cheaper rate and yet get enough cover.

1. Go beyond the sales call. Retail sales practices have reached insurance and some of these discounts are not the final say on the matter. Says Aggarwal: “In car insurance the quoted price often works like the MRP (maximum retail price), which means there is a margin between the discount that your distributor is offering and the maximum discount that is offered by the insurer."

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Adds Yashish Dahiya, CEO,, an insurance comparison portal: “Dealers offer the lowest discount since they have a captive customer base. Go beyond your dealer to agents, brokers or even online portals. You will be able to negotiate a better deal". You could also look at renewing your insurance policy online. Says Ajay Shah, head, customer service, motor, ICICI Lombard General Insurance: “If customers buy or renew their policies online with us, we give an additional discount of 2.5% as we save professional expenses."

2. Don’t compromise on your cover. A comprehensive car insurance policy covers theft or damage to your car; it also covers passengers of the car and comes with a mandatory third-party liability cover. While cover against damage is important, cover against passengers is often given a miss for a discount. The cost of covering the passengers and a paid driver comes to around Rs125. Don’t ignore this cover for a discount. Ask specifically if you have passenger cover and a driver cover in the policy.

3. Look at add-on covers. In addition to your basic policy, insurers have begun to bundle add-on covers. The add-on offerings vary hugely in the market from insuring you against any depreciation on vehicle parts to offering you personal accident cover and medical insurance. Add covers that you need. For instance, if your insurer offers you zero depreciation cover, do take it. Normally, on damage of plastic or metal parts, the insurer only pays the depreciated value and having a zero depreciation cover will pay for the cost of replacing that part. Says Shah: “On damage of a plastic part, insurer’s liability is restricted to only 50% of the cost whereas in metal parts, the insurers liability reduces by 5% every year up to 50%."

4. Don’t take higher risk to pay less premiums. You take on higher risk when you choose a higher deductible or you choose a lower insured declared value, or IDV. A deductible is the money that you have to pay before you get money out of an insurance policy. For instance, the mandatory deductible in a car insurance policy for cars more than 1,500cc is Rs1,000. This means a damage that costs up to Rs1,000 will have to be borne by you. However, if the damage is more, your insurer will then cover the difference.

In a de-tariffed scenario insurers are offering discounts on your premium if you agree to increase the deductible. For instance, if you choose a deductible of Rs15,000 you get a 35% discount to maximum of Rs2,500 on your premium. However, you increase the risk on yourself by that much.

The next is IDV. This is the value that the insurance company would pay you if your car got completely damaged or stolen. A lower IDV means a lower liability on the insurer and hence a lower premium. But if your car gets completely smashed, you will have to settle for that much less. Earlier agents were insuring for less than the IDV, but now IDVs are fixed by the insurer. Says Balaji Cuddapah, vice-president, property and engineering, Bharti AXA General Insurance Co. Ltd: “The IDV is now fixed, however we have a tolerance limit of 5%."

The way the industry is developing, you will soon be able to bargain a better discount on the basis of your track record as a driver, but for now don’t walk into the discounts blindly. Make sure you have done your comparison and do not compromise on essential covers.