Know How is the Insurance Rate Affected by The Number of Miles Driven

Posted on: Jan 6, 2023 | | Written by:

Know How is the Insurance Rate Affected by The Number of Miles Driven

Published on January 05, 2023. EST READ TIME: 4 minutes

If you have a car, you understand the importance of having a car insurance policy. The policy is there to help you cover any damage or loss that the car might cause. This way it helps the car owner not to spend a lot of money on repairing the car, and this financial strain is taken care of by the insurance company. When you renew your policy, there are some details that the insurance company asks for and one of these is the number of miles driven.

Very often, many car owners ask why the company needs the number of kilometres or miles the car is driven. Factors like IDV and no claim bonus are a part of the calculation of the premium of a policy, and thus, the reason for these is valid and understandable, but miles is a common question in everyone’s mind.

There are many aspects of this, and let us discuss each in detail.

Why does the insurance company ask for my annual mileage?

Insurance companies, when issuing a car insurance policy, will ask for many details. This is because they want to know the usage of the car and get an idea of how much is being driven. The premium tends to increase if the mileage is high, as cars that are more on the road have a higher probability of having an accident. The insurance company works on the probability, and they feel that a person who does not drive the car much is less likely to make a claim. This is not the only science behind the calculation of premiums. The car insurance premium depends on other factors like:

1. Age of the vehicle

2. Claims history

3. NCB or No claim bonus

4. IDV or Insured Declared Value

5. Address or geographical location

6. Claims history

7. Deductible

8. Age of the owner

Why don’t most insurers not offer low-mileage insurance rates?

As mentioned earlier as well that insurance companies do not base their premium calculation only on mileage. They do ask for it but they do not stress about it a lot and the simple reason is the pattern of driving can change for any individual. Also, drivers can under or overestimate their driving while declaring their usage. A person who is driving a long distance today might shift closer to the office or change jobs and start working from home. This way his driving pattern for this policy year will be different in the next.

Recently, IRDAI has permitted insurance companies to issue a pay-as-you-drive car insurance policy. This will link the premium of the car on the basis of how well you drive and how much you drive. This will allow the insured to set a mileage limit, and on the basis of this, they will get a discount. The lower the limit the higher will be the discount. The insurance in this case will only be valid till the limit chosen by the insured. The regulator has also suggested that a telematics device can be installed in cars that will interpret how the car is driven, and then discounts can be given based on this interpretation.

Are there discounts available for car insurance based on mileage?

The discounts on the standard car insurance policy are not much. Yes, as mentioned earlier, the underwriting team does take into account the mileage of the car but it does not have a massive impact on the premium payable. You can drive your car as much as you want to and not stress about this aspect, However, when you take the pay as you drive insurance policies, you will need to give the limit of the miles you intend to drive and the discount will be given to those with lower mileage. But do remember that once you cross the limit, your insurance policy will cease to be effective.

Does the number of miles on my car affect the insurance rate?

As of now, with the standard car insurance policies available, the mileage has to be declared to the insurance company but it does not impact the premium in a big way like the other things like IDV, deductibles and no claim bonus. At the time of the renewal, the age of the car does matter and the underwriters will take it into account to calculate the premium.

Common car insurance mileage brackets

While choosing pay-as-you-drive car insurance, you have to choose the slab for the distance to be travelled. This means that you have to declare how much distance you intend to drive, and accordingly, the insurance company calculates the premium. Normally, the slabs are as follows:

1. Less than 3000 km

2. Between 3000 and 5000 km

3. More than 5000 km

The point to be kept in mind is that you should choose a slab which is closer to the lower limit and not the upper limit. Thus, if you feel your car will be driven for 3600 km, you should choose less than 3000 km as you will get a better rate. If you think you are driving more and will cross the limit, you always have the option to top up the kilometre. Always remember to check the terms and conditions of your policy about top up.

FAQs about mileage effect on car insurance

1. Is a car insurance policy premium less for a car which is used less?

The premium of a car depends on many factors and the insurance company does not give a lot of discount on a standard car policy for mileage.

2. Is the pay-as-you-drive available for third-party liability policy?

Third party insurance is mandatory and is not affected by the distance. Thus, the premium of the own damage cover and thus, the comprehensive coverage becomes less.

3. Are add-on covers available in the pay as you drive policy?

The insurance plan is essentially the same as a standard comprehensive policy, and thus, all add-ons are available. The only difference is here. You pay for the premium on the basis of mileage.

Conclusion

A car insurance policy is a must-have for all car owners. The number of kilometres you drive the car does not have a major impact on the premium unless you opt for pay-as-you-drive car insurance. In the latter, you pay for the distance you think your car will be driven for, and the premium is calculated for the same. This way, you can save money if your car is used less and you do not pay the standard premium for one year or multi-year policy. For the annual policy, your mileage is taken into account by the insurance company, but it does not impact the premium in a big way.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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