Can a car purchase on EMI impact your car insurance plan? Here is a brief look at this aspect.
Most of us purchase cars on EMI plans, since we do not cough up the entire amount in one go, giving some respite to our savings. You can plan out your dream car, arrange the down payment amount, use any online calculator like the SBI car loan EMI calculator for working out your monthly payments, and complete the booking formalities. It is a convenient mechanism that enables car ownership in today’s times. However, does your EMI-backed car purchase impact your car insurance plan? That is the big question that we will seek to understand in this article. The answer could be both affirmative and negative. The insurance premium may not alter on account of buying a car on EMI, although the coverage requirements may change accordingly.
Car financing impact on insurance policies
- Coverage Extent- The main cost of insuring a car that has been bought on EMI, comes from the collision and comprehensive coverage, along with the mandatory and basic third-party liability insurance. Full coverage is a must for securing the lender from any financial losses in case of any mishaps. These policies come with higher premium amounts, although it safeguards against financial losses. If the car gets totaled, the insurance company will reimburse the amount for swapping the vehicle with another loan. While buying a car outright, you can choose to purchase only the basic third-party liability insurance plan. This works out to be a cheaper option, although it does not cover the financial cost of vehicle damages.
- Deductibles- Some financial institutions may require an additional pre-fixed deductible as part of their car insurance policies. This sum may be higher than the regular amount that you are comfortable with. Hence, in case of any tragic vehicle accident, you will have to pay a particular amount from your own pocket. However, the higher the deductible, the lower your insurance premium amount. However, you should check all the car insurance policies with care.
- Yearly coverage- Coverage for the full year is a must for cars which are bought on EMIs, even if the vehicle is only used for a few months in this period. You will have to pay coverage for the whole year, even if you use your car sparingly and only for a few months. Some insurers may be willing to provide such exceptions, provided you install tracking devices/sensors in your vehicle, demonstrating its usage patterns.
- Lender guidelines- Lenders may also require the status of payee in case of any financial loss. They may wish to be included as an extra insured entity for the car that they have financed. It will not require any extra money on your part for integrating the lender in this manner. This will enable the financial institution to get money outright from the insurer, prior to any amount being sanctioned for the policyholder.
- Changing insurance policies- Insurance companies will intimate lenders who are payees, about any changes to car insurance policies which impact their respective vehicles. Revisions in insurance coverage, termination of insurance and late insurance payments are such instances. Hence, making any changes to auto insurance plans will lead to lenders knowing about the same swiftly.
- Finance for luxury cars- Car insurance could be more expensive for luxury cars. They are usually designated as such, based on their features, safety features, and adherence to specific standards. Insurance costs are considerably higher for these types of vehicles. This could be impacted in terms of buying a car on EMI. While the premium may not change, the coverage specifics may undergo a transformation.
Buying a car on EMI is not a bad move. It saves you the hassles of paying a fat sum outright, and also makes sense, considering that cars are depreciating assets. However, your insurance coverage could sometimes be expensive, although the premium amounts may not change upfront. This comes through the addition of several guidelines, regulations, and other points to the insurance policy. You will have to provide coverage evidence before being able to actually use your car. You should account for this added cost while planning your car purchase.