- Date : 26/12/2017
- Read: 5 mins
If you own a car, you must know how the cost of car insurance premiums have changed this year.
Rohan, a 29-year-old executive in a private company, was good at managing his money. He made his payments on time, and never allowed debt to pile up. He also made provisions for his monthly expenditures. Financial planning came rather easy to Rohan. However, this year he will feel a pinch as his car insurance premium will be higher than expected. Over the last few months, insurance premiums have witnessed several revisions.
Rohan was unaware of the changes. But, you can be, and this can improve your financial planning. Here’s what you should know
The Insurance Regulatory and Development Authority of India (IRDAI) fixes third party premium rates periodically. These rates vary according to the type and capacity of the car. Premiums for cars less than 1000 CC were Rs 2,055, while those between 1000-1500 CC were charged Rs 2,237. And for cars above 1500 CC, the premium was Rs 6,164.
These rates, however, have changed in the past few months.
• The current premium rate for cars above 1500 CC is about Rs 7,890.
• For cars between 1000-1500 CC, it is Rs 2,863.
• Small cars (up to 1000 CC) are charged a premium of Rs 2,055.
Here’s how 2017 has affected car insurance rates:
First proposal to increase last year’s premium
Earlier in March 2017, the IRDAI proposed a 50% increase in premium rates for third-party motor insurance, which was to be implemented from 1 April 2017. Usually, IRDAI revises rates to deal with inflation, or to help insurers strike a balance between the number of claims made and those settled in a year. After all, insurers need enough funds to honour the crores of claims made every year.
As expected, the IRDAI stated that premiums were revised because of the accident-related data between 2011 and 2016, provided by the Insurance Information Bureau of India (IIBI).
Findings from the IIBI report:
• 1,52,399 cases have been pending for over 24 months
• 66,663 cases have been pending for 12-23 months
• 31,594 cases have been pending for less than a year.
The total claim amount is—hold your heart—Rs 2402 crore. And this is only for four-wheelers.
Revised prices after the first proposal
If you have a small car, you are unlikely to be affected by IRDAI’s proposal, as it had no room for increased premium rates on small cars (up to 1000 CC). The proposed hike was applicable to mid-segment (1000-1500 CC) and big cars (over 1500 CC), including SUVs. Such a hike was expected to increase premium costs to Rs 3,355 for cars up to 1000 CC, while premiums for bigger cars would have gone up to Rs 9,246. The proposal not unwelcomed by private car owners; however, vintage car owners cheered as IRDAI proposed a 25% decrease on premiums for such cars.
The Second Proposal
Consumers are unlikely to appreciate any kind of price hike. Thus, towards the end of the month, the IRDAI offered some good news. The proposal was revised again. This time, however, it proposed to reduce rates. Instead of 50%, insurance premiums for third party motor insurance would be increased up to 40%, and the change was to be implemented from 1 April 2017. For cars greater than 1500 CC, the premium was set at Rs 8,630 and for those between 1000-1500 CC, it was to be Rs 3,132.
The Final Proposal
IRDAI’s final proposal further added to the joy of car owners. On 17 April, it further revised motor insurance premium rates for most vehicles, including cars. The revised rates were said to be applied retrospectively from 1 April 2017. For cars higher than 1500 CC, the premium was reduced to Rs 7,890, and for those between 1000-1500 CC, it was brought down to Rs 2,863. However, even these revised rates were higher than the previous year’s rates.
Goods and Service Tax (GST) and Car Insurance
Previously, the tax rate on motor insurance premium was 15%. However, this rate will increase to 18% post the GST roll out, which will increase the cost of car insurance. Below is an example of how GST changes your car insurance premium.
Let’s say your annual car insurance premium is Rs 20,000, excluding taxes. According to the previous tax regime, you would have had to pay a service tax of 15%, which is Rs. 3000.
Under GST, the tax rate is now charged at 18%, which works out to Rs 3600. This means you pay an additional Rs. 600 on your car insurance.