Find out why a high credit score equals a low car insurance premium
Understanding the Relationship between Credit Scores and Car Insurance Premiums
The car insurance premium is an amount that a policyholder must pay to the insurance provider in exchange for coverage for the car. And insurance companies consider a lot of factors to decide on the policy premium. However, is credit score one of those parameters?
Parameters that affect car insurance premiums:
Here are some of the parameters that insurance companies consider before deciding on the policy premium.
1. IDV:
The insured declared value of the car is the single most important factor. It is the present-day market value of the car after factoring in depreciation. And is the maximum amount that an insurance provider will pay in the case of total loss. A higher IDV translates to a higher policy premium and vice versa.
2. Type of fuel:
The maintenance costs of a CNG car are higher compared to petrol or diesel cars. And it results in shooting up the car insurance premium.
3. Engine capacity
The cubic capacity of the engine of your car is another important factor. A car with a higher engine capacity will lead to a higher policy premium and vice versa.
4. Policy type
You can currently choose from a third-party liability policy, a comprehensive policy, or a pay-as-you-drive policy. Each offers different coverage, and the premium amount varies accordingly.
5. Location of car registration
The location of your car registration also plays an important role in deciding the policy premium. If the car is registered in an urban area, the car insurance premium will more likely be high. It is primarily due to the higher number of vehicles and the chances of accidents.
Impact of credit score on car insurance premium
Your credit score does not influence the car insurance premium in India. However, the IRDAI is currently mulling over an idea to relate credit scores to insurance fraud. Over the past few years, insurance fraud has been a growing concern for insurance companies.
Each year, insurance companies lose aboutRs.30,000 crores to insurance fraud. If the IRDAI proceeds with the proposed plan, insurance fraud will become a factor in calculating the credit score of an individual.
To implement this, insurance companies will need to be a member of any one of the credit bureaus. And they will need to report data and information related to borrowers as well as insurance fraudsters every month. The credit bureaus will then consider this input to calculate the credit score of an individual. Should the idea get into an implementation phase, insurance fraud might result in lowering the credit score of an individual. That will make it a bit more difficult for the individual to secure new credits with a financial institution.
Conclusion
Your car insurance does not have any direct correlation with your credit score as of now. However, the IRDAI is pondering over the idea of including insurance fraud as a parameter to calculate the credit score. When set, it will aim to curb insurance fraud while lowering the credit score of fraudsters.
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