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Know Why Your Car Insurance Premiums Rise Every Year

Published On Feb 13, 2021 10:00 AM By InsuranceDekho

In India, under its car insurance policy, any car needs to be insured by a third party. Motor insurance with third-party liability is a mandatory requirement for all cars driving on public roads in India under the Motor Vehicles Act, 1988. You would also have to pay third party premiums, whether you own a standalone third-party insurer or a comprehensive car insurance policy. As a result, car insurance premiums for third-party insurance and comprehensive car insurance increase every year.

The increment of the third-party car insurance premium every year by IRDAI is the primary factor for an increase in the car insurance premium last year. Third-party insurance allows the policyholder to obtain financial support from his/her car insurer if an accident results in claims from third parties.

Know Why Your Car Insurance Premiums Rise Every Year

Factors Car Insurance Companies Take Into Account While Increasing Insurance Premium

Below are the factors which Car insurance companies most probably take into account before revising the rates:

  1. Claim History: A car owner's claim history allows the car insurance provider to understand whether he or she is a conscientious or reckless driver. As opposed to a driver with no claim background, a person with frequent or multiple claims in the past tends to be a risky driver. For the insurer, a reckless driver is a larger liability and, thus, a higher car insurance premium is paid.
  2. Third-Party Premium Rates: Third-party protection, be it third party or comprehensive car insurance, is an aspect of any car insurance policy. Therefore, the third-party premium determined by the IRDAI covers the car insurance premium. Your car insurance premium would still go up as the third-party premium prices have increased.
  3. Insured Declared Value (IDV): The IDV is the maximum claim amount that, in the event of a complete loss, the insurer will pay you. A higher IDV indicates that the insured must pay a higher claim sum and thus puts a higher risk on the insurance firm. As such, for cars with a higher IDV, the car insurance premium is higher.
  4. Type of Car: The car you drive also has a huge effect on the premium of your comprehensive car insurance plan. The premium for a high-end luxury car is more than that of a hatchback car as the former is more costly with expensive spare parts. Therefore, you would end up paying a higher premium on your car insurance if you drive an expensive car. In comparison, for discontinued cars, the prices are often higher as it is hard to find their spare parts.
  5. Location of the Policyholder: Based on the possible hazards and risks to a car, car insurance prices are decided. If you live in an environment that is more vulnerable to collisions, floods, or political wars, your car is at greater risk than a car whose owner remains in a comparatively safer place. People who live in flood-prone areas, for instance, have more risks of damaging their vehicles. Hence, if you remain in a risky place, your car insurance premiums would be higher.
  6. Driving Habits: Before offering a car insurance quote, certain auto insurers can even review your previous driving history. This exists when the insurance can help driving reports consider your driving patterns and how frequently you breach traffic laws. The insurer will see you as a reckless driver if your driving record is negative, and will thus demand a higher car insurance premium from you.

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Bottom Line

Car insurance are dependent on several variables. Although you cannot do much with the annual rise in third-party rates, to maintain your comprehensive car insurance premiums low, you can take the appropriate precautions.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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