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-   -   Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you? (https://www.team-bhp.com/forum/indian-car-loans-insurance/161306-insurance-premiums-vs-claims-would-self-insurance-cheaper-you.html)

GTO 4th March 2015 16:28

Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
1 Attachment(s)
As we all know, there are two kinds of auto insurance policies:

3rd Party Insurance: Compulsory in India. 3rd party insurance offers cover against loss or damage to a 3rd party (another person, car or property). This basic type of insurance is also known as 'liability insurance' in other countries. It protects you legally against claims from 3rd parties.

Comprehensive Insurance: Full protection against accidents, theft, fire etc. Most insurance companies further offer zero depreciation policies for up to 5 years, wherein you effectively lose next to nothing in case of a mishap. Comprehensive insurance includes 3rd party cover by default.


Here's something to ponder over though...would 'self-insurance' have worked out cheaper for you?

What is self-insurance? Self-insurance basically means that you choose to insure yourself. Therefore, you'd take only the cheaper 3rd party insurance for your car (as required by law), and not the more expensive comprehensive coverage. If there is any damage, you pay out of pocket. Based on posts from other threads, I know a lot of BHPians are already self-insuring their cars. Their understanding is, over the years, the money they pay in premiums is more than what they claim. If we go by the law of averages, and in theory, self-insurance should definitely be cheaper. After all, the profit of insurance companies = premiums minus claims. It is the fundamental business model of the insurance industry.

In USA, self-insurance (even for 3rd party liability) is legal in many states. A lot of Indian business houses & car leasing companies choose to self-insure. They assume that the cost of repair / losses will be less than the insurance premiums they'd otherwise hand out. Some even create tiny 'insurance divisions' that belong to the parent brand, and whose only job is to insure the company's own vehicles.

Of course, there are a lot of things to consider before you self-insure your car. Take a look at your family's driving record. Is the car of your house accident prone? You need to be financially strong and maintain a certain amount of liquidity (cash reserves) if & when there is damage or theft. More than anything, the fear factor will always be there.

No-claim bonus makes full coverage cheaper too (related article). Some of my cars have years of NCB, thus making the difference between 3rd-party & comprehensive insurance slimmer. It doesn't help that 3rd party insurance has only gotten more expensive over the years - related thread.

Then, if you opt for a car loan, the financing company will require you to have full, comprehensive insurance on the car.

A single incident of car theft, total loss accident or major fire is enough to throw all your gains out the window. That said, globally, there's a workaround for this too. You can take a policy with a big deductible (say, $5,000). Translated, you'll take care of the smaller damages and will claim insurance only for the less likely large claims. The effective insurance premiums are a fraction of what one would otherwise pay. I don't believe these type of policies (large deductible, cheap premium) are available in India.

Do I recommend it?

Nope, I'm not here to recommend self-insurance, yet the topic definitely has the potential of a great discussion. Personally, I prefer a fixed + predictable small expense instead of a large + unpredictable unknown liability. I love risk in business, but in such matters, I'd much rather pay a (relatively) small insurance premium and sleep peacefully. It's also why I'm a strong believer of extended warranties. I insure everything I buy (house, TV, laptop, you name it) and take extended warranty wherever available. My Dell Latitude laptop has a 5 year warranty with 4-hour guaranteed onsite service. You can't imagine the fuss-free ownership experience it brings. Extended warranty, after all, is like insurance against mechanical / electrical failures.

GTO 4th March 2015 17:00

re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
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Going by absolute numbers, self-insurance would definitely have worked out cheaper for me. Would it have for you too?

Jeep:

120,000 = Approximate insurance premiums over 18 years
0 = Claims made. Was rear-ended by a fast bus once. Jeep jumped 15 feet ahead. Cost merely 1K odd to bring the tail-gate back into shape :D. Currently on 3rd party insurance as the car is fully depreciated. Pay a ridiculous 4,000 bucks for basic cover every year. Big premium as the engine size is over 2 liters.

Civic:

70,000 = Approximate insurance premiums over 5 years
40,000 = Claims made. Broken windscreen. New left fender & bumper

City Vtec:

55,000 = Approximate insurance premiums over 7 years
0 = Claims made

Sunny:

70,000 = Approximate insurance premiums over 4 years
30,000 = Claim made for left fender & bent bonnet. Chauffeur had a minor accident

C220:

400,000 = Approximate insurance premiums over 9 years
170,000 = Claims made. 70k for 2 windscreens (falling coconuts in the building) and 1 lakh for driver door damage by a PUC idiot

Perhaps, the only time I actually saw a net benefit was when my year old Yamaha RX100 was flicked. Had gotten 32k (or was it 34K) from the insurance company.

Attachment 1346884

GTO 5th March 2015 16:27

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
Thread moved from the Assembly Line to the Insurance Forum!

shipnil 5th March 2015 16:46

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
GTO, do we have theft only insurance in India. Like you, I have never claimed any amount from insurance but the only fear that makes me buy the insurance is theft of the vehicle.

speedmiester 5th March 2015 16:52

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
It's a highly debatable topic.

But I would always recommend comprehensive insurance policy with add on zero depreciation cover for new/newer cars.
The cost of repair in case of minor accidents, electrical or mechanical related can erode all the savings in self insuring.
Also a comprehensive cover is a must for cars which are often targeted by thieves.

Then there is a unwritten rule followed by every service centre, hotel valets and parking places which put the onus of protecting the car on the owner. All this makes a strong case for comprehensive insurance.
Yes, you might save a few thousands, but the peace of mind offered is priceless.

petroguzzler 5th March 2015 16:52

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
Comprehensive insurance and the Zero dep policies are required the most when you either have the vehicle stolen or have a total loss case or vehicle damage in a force majeure condition like flooding, riots etc. Theoretically, one can go for a basic third party insurance by taking into account all these exceptional cases and weighing down the options. For the three cases I mentioned above, say if you have secure parking for the vehicle at your home/apartment/office and you generally drive in the city and you are a gentle driver (total losses in city roads are defnitely lesser than highways) and taking into account of other conditions like flooding (highly unlikely in chennai:)) etc, you could actually opt for third party insurance. However, for complete assurance, Comprehensive is the way to go.

Quote:

Originally Posted by GTO (Post 3656892)

Was rear-ended by a fast bus once. Jeep jumped 15 feet ahead. Cost merely 1K odd to bring the tail-gate back into shape

The beauty of old school machines:D. A hammer and a FNG would be enough to sort out most of the dents.

tsk1979 5th March 2015 16:54

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
I would like to have a large deductible insurance option. However, there is either comprehensive, or the silly 50% for plastics deductible insurance.

drmohitg 5th March 2015 17:09

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
I think there is no correct answer to this. Over the last few years, I had started thinking the same too that it is better to opt for the third party insurance and save on premium amounts. Specially after reading member Dkaile's threads where he highly recommends the above method. But then until that time I hadn't had any accident claims whatsoever apart from small bumper hits and nudges which were easily fixed by your FNG. But once you go through a claim process you realise that paying those premiums for a proper policy is much better.

1. The likely hood of an accident happening is increasing every year I feel with more and more traffic leading to more morons on the roads to deal with.

2. The cost of repairs of most cars these days are atrocious as spares and body panels are quite expensive. Also as the cars get more complex, there are more and more sensors,airbags etc which cost a bomb to replace after an accident.

3. If you have an expensive car, specially European sedans, then their repair costs are even more scary and it is really expensive.

Unluckily I have had multiple claims in the last 2 years:

1. Nissan sunny got hit by a car jumping the signal and the rear door got damaged. Cost of repair was around Rs. 50k.

2. Toyota Altis crashed into a buffalo on an unlit small time highway and total damages were to the tune of Rs. 1.5L.

3. BMW 320d went into a pothole on the highway and both left side rims got bent along with a pebble hit on the windscreen, all adding upto a bill of Rs. 1.6L.

So approximately I would have had to shell out close to Rs. 3.5L but thanks to 0% depreciation, I ended up spending only around Rs. 10k.

Now if I add the premium amounts that I have paid from the day we got our first car back in 1989 then the total cost will easily exceed this amount. But then as I said, the chances of ending up with a damaged car are much higher these days than they were a decade back. Plus with 0% depreciation, you don't need to pay up a single penny and it is definitely worth the premium.

kiku007 5th March 2015 17:13

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
I feel there are four reasons to go for Comprehensive coverage with zero depreciation pack.

1. The fear of UNKNOWN
Insurance is to cover ourselves against the unknown. It's one thing to review historical data (i.e amount spent on insurance premiums against claims made) and calculate profit or loss vs predicting future eventualities.

2. High Cost of Accident Repairs
Accident repair costs have just sky rocket in recent years. A friend's Ecosport Petrol Auto Titanium, ran over a dead cow at about 80 KmpH. No damage to engine or transmission. Repair bill amount? Rs.3.75L + Taxes. He was thankful to me that I urged him to take the zero dep insurance.

3. High risk of theft
There's been an increase in thefts but no change in the low rate of finding a lost vehicle.

4. Increase in number of idiots on the road
Suicidal drivers and pedestrians on the road = high risk of accidents.

P.S: Know of a person, who opts for zero dep and ensures he gets back the insurance premium amount by, believe me, banging the car against a stone to make a small dent on the bumper big and claim accident damage. Feel sad for the car.

SmartCat 5th March 2015 17:19

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
Insurance, by definition, is not meant to be financially profitable. It is meant to give you peace of mind. Any insurance for that matter - whether it is auto, home, health or life insurance.

Now, you don't need to see how much you have claimed to see if it makes sense to continue with your auto insurance policy. As they say in mutual fund investment world, past performance may not be an indication of future performance. Your past claims may not be an indication of your future claims.

Now do you need auto insurance? It really depends on how wealthy you are and what is the value of your car.

If you have Rs. 10 Crores in assets, you DON'T need to insure that Rs. 8 Lacs Maruti Swift. But if you have just Rs. 10 Lakhs in assets, you need to insure even a second hand Tata Nano.

Burn_out 5th March 2015 18:51

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
Quote:

Originally Posted by smartcat (Post 3657583)
Insurance, by definition, is not meant to be financially profitable. It is meant to give you peace of mind. Any insurance for that matter - whether it is auto, home, health or life insurance.

I agree with this wholeheartedly. Lets say, I have a term life insurance, but that doesn't mean I will want to die just to get the money.

On Indian roads, you really have comprehensive insurance as a preventive measure to reduce the chances of your heart attack. I would never have been able to let my wife drive the car and not have a stroke if she called up and said the tail-light got knocked, along with the entire rear-end. For an older vehicle probably, getting the cheaper option will make sense, but never for your new pride & joy.

I have comprehensive cover on my car, and plan to stick to it till the car is 4 years old and then move to the cheaper option. OR, till my wife gets her own car.

Engine_Roars 5th March 2015 19:11

Hello Everyone, this is my first post on this platform and I hope I live up to the expectations. I am proud to be a part of this community.

I think comprehensive insurance makes more sense for people like me, who by all means would not be able to recover from the shock when the vehicle which they had bought on a loan has been stolen or is declared a total loss and they will still be paying EMIs through the holes in their pockets while traveling in public transport or walking.

MadAbtCars 5th March 2015 19:16

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
This is truly a debatable topic and it's really hard to decide whether to speak for it or against it. As a friend had once given me a beautiful definition of Insurance "Insurance is what 100 people pay for 1 person's claim". I would rather be one of those 100 and God forbid if a situation comes that I land up to be that 1 person, I would have the backing of 100 people.

That said, I would always stick to and recommend a full zero depreciation comprehensive insurance till the time my car has fully depreciated (read 5years)

miharbe 5th March 2015 21:11

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
I would love to go only for 3rd party Insurance especially after reading it on @Dkaile's threads but unfortunately my luck doesnt support me.

Case in point my Vento was rear ended very badly in the first year of ownership and I ended up with a INR 175,000 bill even that was my third claim that year as I had crashed my bumper twice and exhausted both the zero depreciation claims. I am so far in profit ever since I started paying for Insurance.

As for my father I think having 3rd party insurance would have worked better for him as he has had 1 claim in 35 years of driving (sometime last year)

However in principal I can live with limited liability (Comprehensive Insurance) but the thought of living with unlimited liability (3rd Party Insurance) scares me. It would be interesting if there were a 3rd Party Insurance + vehicle theft cover which I would consider.

Lalvaz 5th March 2015 21:24

Re: Insurance premiums vs claims - Would 'Self Insurance' be cheaper for you?
 
In my 15+ years of self driving, I have made no insurance claims, so definitely self insurance seems to be cheaper for me, however I realize that I have paid and been covered for other risks as well during the period. Insurance cover is required to save one from those perils (if they come true, god forbid), so I do not grudge paying those comprehensive premiums for all those years. However, what does get my goat is the way Indian insurance companies try and back out of paying genuine insurance claims, why cannot we have a civilized claim process wherein people exchange details of their insurer in the event of an accident. Even minor accidents in India lead to fistcuffs since people (quite justifiably) believe that Insurance companies will not compensate in full and the resultant hassle is just not worth it, so they try and squeeze their loss from the opposite party. That is so crude, its not even funny, we're in 2015 for christs sake.


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