Car insurance has two sections namely third party and the own damage section. The own damage section is also referred to as the first party car insurance. With the introduction of long term Car insurance policy by the IRDA, customers can now opt for either 1 year Own damage and 3 year Third party or 3 year Own damage and Third party. If the customer has opted for 1 year Own damage and 3 year Third party then the renewal has to be done after the expiry of 1 year own damage. In this case, the renewal of first party insurance is done by the customer and hence the term first party car insurance has become famous recently.
What is First Party Car Insurance?
The own damage section of the car insurance is known as the first party car insurance. In the insurance agreement, the person who purchases the insurance is known as the first party, and the company that sells the insurance is known as the second party. The customer who pays for his car insurance is known as the first party and any claims made under the first party section are settled by the insurance company under the own damage section of the car insurance policy.
First party car insurance is an agreement between the insured customer and the insurance company whereby the insurance company agrees to settle the damages incurred by the insured in return for a considerable amount known as a premium. Under the first party car insurance, the damage to the car due to an insured peril is settled by the insurance company.
What is Covered in First Party Car Insurance?
The first party car insurance covers the loss or damage to your car due to an insured peril operating at the time of the accident. Let us understand the perils covered under the first party car insurance policy:-
- Loss or damage to the car by Fire, Explosion, Lightning, or Self-ignition;
- Loss or damage to the car by Burglary or House Breaking and Theft;
- Loss of damage to the car by Riot or Strike;
- Loss or damage to the car by Earthquake including fire and shock damage;
- Loss or damage to the car by Act of God perils such as Typhoon, Storm, Floods, Tempest, Inundation, etc.;
- Any loss or damage to the car due to an accidental external means;
- Loss or damage to the car due to any malicious activity committed by any third party;
- Loss or damage to the car due to any terrorist activity;
- Loss or damage to the car while transporting it from one place to another through Rail, Road, Inland waterway, Lift, elevator or Air;
- Loss or damage to the car by Landslide or Rockslide.
What is First Party Premium in Car Insurance?
As discussed above an insurance policy consists of two sections namely; First party and Third party. Insurance is a contract between the customer and the insurance company where the insurance company agrees to settle the claims of the customer due to an insured peril in return for a specified amount known as a premium. In the insurance contract insured person is known as the first party and the insurance company is known as the second party. The insurance company provides coverage to the insured property i.e. CAR, against insured perils and hence the name first party car insurance.
The first party car insurance in short covers the loss or damage to the insured customer’s car due to an insured peril acting at the time of the accident. The 1st party car insurance can be taken as a Stand-alone cover if your car is already insured against third party loss or damages. First party car insurance is not mandatory as per the Indian motor vehicles act and is at the discretion of the customer to purchase it.
The premium for the first party car insurance is decided by the car insurance companies, unlike the third party premium which is decided by the IRDA, the insurance governing body in India. The first party tariff for car insurance has been prescribed by the IRDA and the insurance companies are free to operate within the tariff. Here is first party car insurance tariff for different Zones and different cubic capacities of the cars.
|Age of the Car
|Not exceeding 1000cc
||Exceeding 1000cc and not exceeding 1500cc
||Not exceeding 1000cc
||Exceeding 1000cc and not exceeding 1500cc
|Not exceeding 5 years
||3.039% On IDV
||3.191% on IDV
||3.343% On IDV
||3.127% On IDV
||3.283% On IDV
||3.440% On IDV
|Exceeding 5 years but not exceeding 10 years
||3.191% ON IDV
||3.510% ON IDV
||3.283% ON IDV
||3.447% ON IDV
||3.612% ON IDV
|Exceeding 10 years
||3.267% ON IDV
||3.430% ON IDV
||3.594% ON IDV
||3.362% ON IDV
||3.529% ON IDV
||3.698% ON IDV
For example, if the age of the car is below 5 years, cubic capacity is above 1500cc, operating in A zone and the IDV of the car is Rs.10Lacs, the first party premium is calculated as 3.440% of the IDV which is
(3.440 *10, 00,000)/100 = Rs.34, 400/- excluding GST.
The car insurance companies cannot charge the first party car insurance premium above this amount for the above-mentioned Age, CC, and Zone of operation of the car. Due to the heavy competition in the Indian market, most of the insurance companies end up charging only the half-rate specified by the IRDA to match the competitor’s premium as well to be in a situation to settle the first party claims. The first party car insurance can be taken as a standalone if there is an existing third party car insurance policy.
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Coverage under First Party Premium:
First party premium insurance covers the loss or damage to the property (car) of the first party (insured) due to an insured peril at the time of the accident. The list of perils covered under the first party car insurance is mentioned below:
- Loss or damage to the car due to Fire
- Loss or damage due to natural catastrophes such as cyclones, typhoons, Earthquakes, Storms, etc.
- Loss or damage to the car due to roadside Accidents
- Loss or damage to the car due to manmade disasters such as Strike, Riot, and Malicious damage.
- Loss or damage to the car due to any other unfortunate event not caused deliberately.
First Party Premium Calculation:
First party premium rates are decided by the insurance companies and are very competitive in the insurance market due to the high number of insurance companies offering the product. The premium for first party is calculated by the insurance companies using the below table:
|Basic First party premium
||As fixed by the insurance company
|Less: Company discount
|Premium after company discount
|Less: Anti theft device discount
||2.5% up to Rs.500
|Premium after anti theft device discount
|Less: Automobile Association of India (AAI) discount
||5% up to Rs.200
|Premium after AAI discount
|Less: No Claim Bonus discount
|Final First party Premium after discount
||Bumper to Bumper, Consumables, Roadside assistance, Invoice cover, Key protection, etc.
|Final First Party premium including add-ons
- The other factor deciding the premium of car insurance is the age of the car. The age of the car is divided into three types; Less than 5 years, More than 5 years and Less than 10 years, More than 10 years. The first party premium is decided by the insurance companies based on the age of the vehicles. Few insurance companies offer high discounts for new vehicles and vehicles aged above 5 years. Few insurance companies offer good discounts for vehicles below 5 years and vehicles above 10 years. All this depends on the loss ratio of the car in the previous year where the loss ratio is also calculated age-wise.
| Age of the CAR
||Less than 5 years
|More than 5 years and less than 10 years
|More than 10 years
- Another factor deciding the first party premium is the Place of registration of the Car. All the RTOs are classified into two zones; Zone A includes all the Metro cities and the state capitals while Zone B includes all places other than those in Zone A.
- The cubic capacity of the car also decides the premium of your car insurance policy. Cubic capacity can be defined as the size of the car in relation to the engine capacity. The higher the cubic capacity, the higher would be the size of the engine of the car. The bigger the engine, the higher would be the performance of the car. The cubic capacity is divided into three types for insurance purposes; Cars with a cubic capacity less than 1000cc, cars with cubic capacity exceeding 1000cc and not exceeding 1500cc, cars with cubic capacity exceeding 1500cc. The third party premium and first party premium depend on the cubic capacity of the car. Higher the cubic capacity of the car, higher would be the premium of your car insurance policy.
||Less than 1000cc
|More than 1000cc and less than 1500cc
|More than 1500cc
- The first party premium of your car insurance policy can be reduced by installing an anti theft device approved by the ARAI. The premium can be reduced by 2.5% or up to Rs.500 whichever is lower. Anti theft devices help in reducing the theft of cars as burglars prefer cars without anti theft devices.
- Also, the first party premium can be reduced by taking the membership from the Automobile Association of India. Insurance companies offer discounts of 5% of the first party premium or Rs.200 whichever is lower.
- Also for car insurance calculation can be used to reduce the premium if you opt for higher voluntary excess or deductible. The higher deductible you opt for, the lower would be the premium. Voluntary deductible is the amount of claim which you would bear at the time of claim settlement.
How to Calculate First Party Car Insurance Price?
Car insurance policy has two sections namely the First party/ 1st party section and Third party section. With the introduction of long-term motor insurance policies, it is possible for the customers to take stand-alone first-party car insurance or own damage insurance. Prior to the introduction of long-term motor insurance, it was not possible for the customers to only opt for first party insurance, every car which plies in a public place has to be insured for the third party and therefore a motor insurance policy would contain both the first party and third party insurance.
The premium for first party in car insurance is decided by the insurance company within the limits set by the IRDA. IRDA decides on the third party premium rates which are subject to change every year depending on the previous year's loss ratio, GWP collected, etc. The first party premium rates differ from company to company and depend on many factors such as the cubic capacity of the car, place of registration, make and model of the car, age of the car, additional coverage required, etc. Most of the companies decide on the first party premium based on the loss ratio available for that particular model and hence some companies may charge a heavy premium for your car while some companies may charge less premium.
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