No Free Lunches While Choosing Car Insurance


In the cut-throat automobile market, it is not uncommon to hear a car dealer offering free insurance cover on the vehicle or charging as little as a rupee.

While this may seem as an attractive proposition initially, you may have to feel the pinch later. Dealers offering car insurance for free or for a nominal amount at the time of purchase are not likely to offer you a good deal on renewal of the policy cover.

Car dealers get a commission for selling a particular insurance company's policy. Both small and big insurers have agreements with various car dealers for selling their motor insurance policies.

While the big players in the motor insurance segment have been following this practice for long, small and mid-sized insurers are following suit only now.

Once the car insurance policy is sold, the insurance firm passes on the commission cost, which it has to pay to the dealer, to the policyholders as a premium cost.

Consequently, policyholders have to pay a higher amount than the normal premium when the time for policy renewal arrives.

The normal premium for a car insurance policy depends on the location, the make of the vehicle, its age and claims history. At the time of renewal, car dealers load the commission cost they are to get from the insurer with the premium amount.

As a result, policyholders do not get the full discount offered by the insurance company when they buy the policy from a dealer.

Following detarrification in the general insurance segment, even the channel through which the policy is acquired is also making a difference.

"The burden of the overriding commission cost goes to the customer. As this practice is followed by almost all general insurers with a motor insurance portfolio, customers must show more discretion before signing the dotted line. Moreover, it is important that they opt for a policy offered by a financially sound insurance firm with a good claims history", says Sourav Acharya, Insurance Consultant, Bajaj Allianz General Insurance.

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