Imagine, after much deliberation, you and your friend decide to buy the same car. And then to protect it, you both choose to buy the same car insurance policy from the same insurer. Interestingly, you both have almost the same years of driving experience with no history of making claims. However, you both were confused to see that the policy premium differed. Well, there was a major difference that you overlooked. You are based in Bhopal, and your friend is located in Shimla. And it was the area of your residence that made all the difference. Still confused? Well, let’s explore how and why your zip code impacts car insurance rates.
How Zip Code Affects Car Insurance Rates
Several factors affect the cost of car insurance, and one of them is zip code. So, let us understand how zip code affects car insurance rates –
- Population Density: The density of the population in your area can affect your car insurance costs. Densely populated areas tend to have more traffic congestion, increasing the risk of accidents. Taking this risk into account, insurance companies charge higher premiums. So, if you reside in an urban zip code with many cars on the road, your premium will be more than an individual living in a rural area because of population and traffic density.
- Crime Rates: If vehicle-related crimes such as theft or vandalism are high in your zip code, the likelihood of filing claims is also high. Insurers consider these areas high risk and charge higher premiums to mitigate the risk.
- Urban Vs Rural Areas: The cost of insurance also depends on the location where you reside – urban or rural. Premiums are generally higher in metro cities because of high levels of traffic congestion, increasing the risk of accidents. On the other hand, rural areas have less traffic, resulting in fewer accidents and lower premiums.
- Weather conditions and natural disasters: Areas prone to extreme weather conditions or natural disasters, like earthquakes, floods, cyclones, etc., lead to high insurance rates as these events increase the likelihood of claims. While determining the premium, insurers consider the damages that natural disasters can cause to your vehicle and adjust the rates accordingly.
- Cost of Repairs: In some zip codes, the cost of repairs or replacement is high due to labour costs or availability of parts, impacting the car insurance premium. In such areas, the premium tends to be higher.
- Zip Codes: In India, the IRDAI has divided regions into two zones – Zone A and Zone B. Insurers customise the rates based on the risk factors of each zone. While major cities like New Delhi, Mumbai, and Kolkata fall in Zone A, Zone B includes the rest of the country.
Premium Calculation based on Car Insurance Zones
The IRDAI has divided the country into two zones and the premium varies depending on the risk factors in the specific zone.
- Zone A: Zone A includes major cities like Mumbai, New Delhi, Bengaluru, Kolkata, Chennai, Hyderabad, Pune, and Ahmedabad. These densely populated cities have heavy traffic because of more vehicles on the roads, raising the risk of accidents and theft. The insurance rates in this zone are generally higher to cover the risks.
- Zone B: Cities falling under Zone B have comparatively lower premiums due to less traffic congestion and lower risk of accidents and theft.
So, car insurance is expensive when you live in a big city because of the increased risk compared to smaller towns.
Apart from population density and traffic congestion, many other factors impact the premiums, such as the car’s age, engine capacity, and Insured Declared Value (IDV). The IDV is the maximum amount you will receive from the insurer in case of total loss to your vehicle. The higher the IDV, the higher will be the premium.
Conclusion
When you buy a car, remember that the location or zip code is one of the significant factors determining the cost of a car insurance policy. Although we cannot do anything about it, it is important to know how zip code affects the insurance rates to help select the desired plan. Although third-party liability insurance is mandatory in India, securing your vehicle with comprehensive car insurance is advisable for complete protection against damage due to accidents, fire, theft, and natural or man-made calamities. If the car insurance policy has lapsed and you unfortunately have an accident, the insurer is not liable to compensate you for the loss. Buying or renewing motor insurance from a car insurance app or website is just a few clicks away, so ensure the policy is renewed on time for uninterrupted coverage.
