There are many reasons one could think of when choosing a good car, and one of them could be insurance. Being a minimalist, I see car as a thing that takes me from point A to point B safely and protecting me from the elements (I was not like this before becoming a minimalist though). So whether it is raining or too hot, windy or dark, my vehicle should let me go from one place to another, assuming I have sufficient driving skills. For others a car could be a status symbol or it could be a shiny new toy with lots of bells and whistles. Have you heard about the refrigerator and foldable table in your car, or the wipers for your headlights? Well, some features do improve safety, but others are just gimmicks.
Anyway, back to the point. If a car is just a car, you could save on car insurance. That is what a minimalist would do. So let me explain. There are many things that go into determining the premiums you eventually pay for your car insurance. But there are some things that you can control. Take for example the age of the vehicle. The older the car, the lower the insurance. Reason? Depreciation of course.
A brand new car costs a lot of money. Likewise the cost of components in a new car are quite expensive to replace or repair. We know that a car depreciates in value very quickly as soon as it drives out of the showroom. As a result slightly older cars have much lower insurance as compared to a new car all in thanks to Insured Declared Value (IDV). It is used to determine the amount that an owner will be get if the car is totally damaged or stolen.
The IDV is arrived at by deducting a depreciation value from the car’s listed price. Based on the IDV as one of the parameter your insurance premium is determined. So lower the IDV, lower the premium. A lower IDV is possible if a higher depreciation is used. A higher depreciation comes about based on the age of the vehicle. So it is a round about way to say that older cars have lower insurance premiums :). Take a look at the depreciation value table to understand how much the value of the car depreciates over time.
|Age of Vehicle||% Depreciation for adjusting IDV|
|Not exceeding 6 months||5%|
|Exceeding 6 months but not exceeding 1 year||15%|
|Exceeding 1 year but not exceeding 2 years||20%|
|Exceeding 2 years but not exceeding 3 years||30%|
|Exceeding 3 years but not exceeding 4 years||40%|
|Exceeding 4 years but not exceeding 5 years||50%|
List price of the car
Now keeping IDV in mind, think about the original cost of the car. If the original cost of the car is higher then, even after 50% depreciation, the cost will still be higher. After all, one of the components of IDV is the cost of parts. So if the cost of car parts is higher, then IDV will be higher too. For example, replacing suspensions of a BMW is much higher than replacing the same part in a Maruti car. Not only are you paying higher for BMW, but you will have to pay a higher price for repairs. Of course, it is entirely possible that the parts in a BMW may last longer (although I doubt it), but IDV does not know that. It is just a basic formula that adds up the cost of repairs. So, buying a cheaper, generally available mass market car is better than buying a premium car, unless you are going for that status symbol, in which case, you are doing the right thing :).
Another interesting fact is that higher capacity engine cars carry a higher insurance premium too. Did you know that cars with an engine capacity of less than 1000 cc have the lowest insurance premiums? And cars with engine capacity of more than 1500 cc cost more than 3 times the third party insurance premiums when compared to the lower than 1000 cc engines? So why would you buy a car with a much bigger engine than you need? I drive a car with less than 800 cc engine which works fine carrying around 4 adults and a kid. Of course it struggles on steep climbs with the air conditioning on. Or when I have to drive around with more than 5 adults. But those are such edge cases.
What did we learn then? Driving a cheaper (list price), small used car will save you some money when it comes to insurance. This also works for repairs and servicing. Remember, buying a car is a one time cost, but maintaining it is a life long affair. Going for an expensive upfront cost also means future higher recurring costs. Of course I don’t mean that you should compromise and go for a car that is too small for your needs. If your needs are such that you need a 7 seater car, by all means go for it. But don’t be driving all alone most of the time. It should really serve its purpose.