In the United States and many other countries, your credit score is used to determine your car insurance premiums. Not only for cars, but also for your home and personal property. The impact of credit scores on insurance premiums in India is not well studied. However, in recent years, an increasing number of insurers have begun to check credit reports before determining the vehicle insurance rate.
What Is A Credit Score? Why Is It Important?
A Credit Score is a three-digit number that lenders use to determine your credibility and repayment capacity. All of your existing credit cards and loans, as well as your overall liabilities, are listed on your credit report. Your repayment history aids them in choosing whether or not to approve your loan application. A credit score ranges from 300 to 900 points, with a credit score of 750 considered good for obtaining the best credit and loans.
Credit Bureaus in India are the official entities that collect and generate your credit score and credit information report. There are four authorized credit bureaus in India; CIBIL, Equifax, CRIF High Mark and Experian. A consumer is entitled to one free credit report per year that they may request from any of the 4 bureaus.
Credit Score and Car Insurance Premium
Before giving any type of loan to a borrower, their credit score is usually checked. A strong credit score ensures the lender that the loan will be repaid on time. When it comes to vehicle insurance prices, the insurer may look at the credit score to see if the customer will pay all of the bills on time. That appears to be the most logical link between credit score and auto insurance rates. Because a low credit score may indicate that the insurer has too many loans and liabilities and may not be able to pay the premiums on time, a low credit score should be avoided.
Factors Affecting Your Car Insurance Premium
As per latest guidelines, every car should have an insurance if you want to drive it around India. Third party liability coverage is a must. They initially mandated a 3-year third party liability to be bought for every car, which was later relaxed to one-year mandatory.
There are several car insurance providers in India but your car insurance premium would be different with each insurer. Apart from agent commission and value adds, what are the factors affecting your car insurance premium? Here are the top 5:
Insured Declared Value/IDV
This is the value of your car as per current market regulations. This value, which is usually set by your insurance carrier, is the estimated current value of your car after depreciation. Depreciation includes accessories like seat covers, floor mats, entertainment systems, etc. The higher your automobile’s IDV, however, the higher your car insurance rate. This IDV value of your car reduces over time as the value of your vehicle lowers and the insurance premium will also reduce accordingly.
Your Driving History
As much as your car value, your driving history also plays a role in determining your car insurance premium. This means that you enjoy better rates of car insurance premium if you have to have a good driving record.
The Make And Model Of Your Car
Whether your car is a passenger car or a commercial vehicle; additionally, sports car premiums are often higher than conventional ones. Premiums are normally higher for cars with higher cubic capacity or those that run on gas or CNG. Now with more electric cars in use, that has an effect on your insurance premium too.
Did you know that installing a central lock or anti-theft system on your vehicle can help you save money on your car insurance? The presence of such safety equipment decreases car theft, lowering the insurer’s risk. They can offer lower premiums for such vehicles. Most cars nowadays come equipped with GPS, which aids in tracking them down. Aside from cutting your auto insurance premiums, these safety features have a very useful purpose to perform.
Any car insurance policy can have two types of coverage: basic Third Party Liability, and a Comprehensive Coverage, which also includes own-damage protection. Although third-party liability is mandatory, it is smart to choose own-damage as well. Premiums will vary as a result. Then there are add-ons such as nil-depreciation coverage, bumper-to-bumper coverage, 24-hour on-road support, tow-service assistance, and so on, which can be selected at the time of purchase and will affect the insurance premium.
Apart from the above, another factor determining your insurance premium is your claim history. If you have not claimed any insurance during the previous policy year, you get something called the ‘No Claim Bonus’, which is a discount percentage added to your policy.
Car insurance is an annual financial liability for every car owner. In India, it is illegal to drive a car without having car insurance. As a result, vehicle insurance companies are beginning to use your credit score to decide your price. Despite reports claiming they merely run a soft-check that has no influence on your credit score, we must wait for more definite information on the relationship between credit score and car insurance premiums to discover more.