When less is not always less

Renewing car insurance on the same terms should be the simplest of tasks. Yet, often motorists unknowingly pay more for less. While reviewing his renewal quotation, a friend noticed something puzzling. The insured value of his car had reduced, as expected — but premium had risen. “How can that be?” he asked.

The Insured Declared Value (IDV) represents the sum insured under a motor policy – the maximum amount payable if the car is stolen, lost, or damaged beyond repair. Since a car’s market value depreciates over time, the IDV reduces annually in line with the insurer’s depreciation schedule. Logically, a lower sum insured should mean a lower premium.

Premium up

In practice, however, insurers often raise the premium rate as the car ages. Steep discounts are offered in early years — sometimes almost 90%! But wait, that can be only on paper as renewal quotations can also include bundled add-ons you neither asked for nor can opt out of. Some insurers even load a personal accident cover, charging ₹750 to ₹1,000 extra, despite this cover already being included in the mandatory third-party (TP) policy. Such duplication inflates premium.

There are several ways in which a renewal quote can mislead if you are unwary. Start by checking if the correct no-claim bonus (NCB) had been applied. Next, if this is the first or second renewal of a new car, verify if the quote covers only the Own Damage (OD) portion of the policy.

To see why this matters, go back to the time of purchase. When a new car is bought, insurance is usually arranged by the dealer as part of the delivery package. While buyers are legally free to choose their insurer, those who try often encounter subtle pressure – preferred registration dates becoming unavailable, cashless repair facilities being withdrawn or other “non-tariff” barriers. In the excitement of buying a new car, most buyers simply accept the bundled insurance. Every motor policy has two components: third-party liability (TP) and own damage (OD). TP covers losses caused to others, while OD pays for damage to your own vehicle. For new cars, TP insurance is mandatory for three years upfront. Consequently, the first-year premium includes three years of TP cover and one year of OD cover.

At the first renewal, only the OD premium is payable. The total renewal amount, therefore, looks substantially lower – a detail that is easy to miss and one often used to project the quote as ‘competitive,’ though the coverage structure itself has changed. The lesson is simple. Never judge a motor cover renewal by the headline premium alone. Examine the IDV, discounts applied, add-ons bundled, and – crucially – what portion of the policy you are actually paying for. When it comes to renewals, ‘less’ can easily turn out to be more. We have only scratched the surface. More on this soon.

(The writer is a business journalist specialising in insurance & corporate history)