Today I am going to tell you how to save money while buying insurance on a new car. Before I go into it, I would like to tell the reader that the profit margin on car sales for car dealers is very small. The way dealers make money are,
- Selling services like car servicing, car repairing, etc. You know now why they keep calling you when your car serving is due.
- Sale of accessories. You will find the same accessories cheaper outside.
- Sale of financial product such as Insurance.
In this article, I am only going to talk about how car dealers make money by selling insurance. The way they make money is very similar to the way an insurance agent would make money. i.e. through commission.
Car dealers will package the car insurance with car. However you can purchase this insurance on your own from an insurance firm. A good start would be to enquire about the insurance firm tied with the car dealer (say ICICI Lombard). You can then independently find the premium being offered by ICICI Lombard. This rate will be very lower than what the dealer will be charging you. Once you have this information, you can compare the insurance premium charged by the car dealer through ICICI Lombard and that charged by ICICI Lombard independently. The difference is pocketed by the dealer. The difference was Rs. 7000, when I was buying an insurance cover of Rs. 4,50,000 for my car in 2011. Remember you will be paying this difference each year when you renew you policy.
You will have to negotiate hard with the dealer to get the insurance independently. One thing you can do is to negotiate for lot of free accessories from the dealer. Once that is settled, you can forgo those accessories in exchange for independent insurance purchase. The accessories are anyway overpriced and you can buy them from outside the dealership at half the prices. Also remember that you will be saving on the difference in the insurance premium year after year.
One way the dealer could trick you is by lowering the insurance premium to the same level as you are getting while buying the insurance independently. The way the dealer does this is by lowering the IDV value. IDV value is the insurance cover on you vehicle or the amount for which your car is insured (Rs. 4,50,000 in the above example). So keep track of the IDV value for different premiums.
Dealers may tell you that your car cannot undergo registration without an insurance policy. So you should buy an insurance policy from ICICI Lombard before the registration. For this you will need the Engine number and the Chassis number of the vehicle you intend to purchase. This the dealer will provide you.
You should also buy the policy online as it will save you additional money. Don't go through a agent. The online purchase is easy and instantaneous.
Also remember to make minimal advance payment, as this will help you in your negotiations with the dealer. The dealer will initial agree to a small advance payment as he would like to lock you in as a customer.
So be smart and buy your car and insurance separately.
So be smart and buy your car and insurance separately.
