All you need to know about car insurance

car insurance

A car insurance policy is a mandatory requirement as per law. If you have a car and want to drive it on Indian roads, you should have a valid car insurance cover on your car. This mandate is prescribed by the Motor Vehicles Act, 1988. Since a car insurance policy is compulsory, you should have a complete understanding of the plan, its benefits and other features.

Read more about 5 consequences of driving without car insurance

Types of car insurance policies

In India, there are two types of car insurance plans which are described below –

Third party liability cover

It is also called ‘liability only policy’ or ‘third party policy’. This is the bare minimum coverage which is mandated by the Motor Vehicles Act, 1988. The policy covers any financial liability you face in the following circumstances –

  • When a third party (any individual other than you and your car) dies due to an accident involving your car
  • When a third party suffers physical bodily injuries due to your car
  • When your car damages third party property

Benefits of third party cover

  • The premium is very low and it depends on the engine capacity of your car. It does not depend on the car’s age and remains fixed.
  • For any third party injury or property damage, you get coverage for up to Rs.7.5 lakh. In case of death, however, there is no limit to the coverage.
  • Third party can claim a compensation from your policy under ‘no fault liability’

Limitations of a third party cover

Though a third party policy has benefits, it has limitations too. These limitations are as follows –

  • The policy does not cover damages suffered by your car
  • If you suffer an accidental death or disablement you, usually, do not get any coverage. However, in some plans, there might be a personal accident cover of Rs.2 lakhs for the owner/driver of the car.
  • You don’t get a discount if you don’t make any claim in a policy year
  • Add-on coverage features are not available in a third party policy

Read more Is it worth buying Third party car insurance policy?

 

Comprehensive package policy

The other type of car insurance policy is the comprehensive package policy also called package policy. The policy covers the mandatory third party liability and also damages suffered by you and your car. Coverage is provided for the following contingencies –

  • Death of a third party or bodily injury caused to a third party
  • Third party property damage due to your car
  • Damages caused due to man-made calamities like fire, theft, collisions, etc.
  • Damages faced by the car due to natural calamities like earthquakes, lightning, flood, hurricane, etc.
  • Damages faced when your car is in transit by air, water or road, etc.

Benefits of a comprehensive policy

A comprehensive car insurance policy has many benefits which include the following –

  • Coverage is given for both third party liability and damages faced you
  • Compensation is also paid when your car collides with a car or something other than another car
  • You can opt for various add-on coverage features
  • There is a no-claim discount in the premium if you don’t make a claim in any year

Limitations of a comprehensive policy

There are certain limitations under the plan which include the following –

  • Premiums are higher because of the comprehensive scope of coverage
  • Premiums increase further when add-ons are selected

 

Know why it is important to have comprehensive car insurance by watching this video

Add-ons in a car insurance plan

Add-ons are additional coverage features which are available in comprehensive car insurance policies at an additional premium. The most common and popular add-ons include the following –

  • Personal Accident/Personal Injury Protection (PIP)-This add-on covers death and disablements which you might suffer when involved in an accident.
  • Medical expenses –Under this add-on, the medical expenses incurred on an ambulance and treatments are covered if you are involved in an accident.
  • Vehicle replacement –Through this add-on the insurance company promises to replace your car with a new one of an equivalent value if your car is stolen or if it suffers a complete loss.
  • Rental reimbursement –When your car is at the workshop for repairs you might hire a rental car for your conveyance needs. This add-on covers the cost of such rental cars that you incur.
  • Zero depreciation –In case of damage, the claim is paid after deducting depreciation from the cost of the parts repaired or replaced. With this add-on, the complete cost of replacement is paid by the insurance company irrespective of the applicable depreciation.
  • NCB protect –When you don’t make a claim you earn a no claim discount. However, this discount is lost whenever a claim is made. This add-on ensures that even after you make a claim you don’t lose your accumulated discount.
  • Engine protect-This add-on covers the cost incurred in replacing or repairing the engine of your car.
  • Roadside assistance –This add-on ensures round-the-clock assistance by the insurer if your car breaks down. The company provides you with on-site repair and rescue services with this add-on.

Read more about No claim bonus in car insurance

Important car insurance terminologies

Insurance being a technical concept involves the usage of a lot of jargons which are not easily understood by an average customer. So, here are some common terminologies used in your car insurance plan which you should know about –

  • Premium –Premium is the cost of the insurance cover you take on your car. It is required to be paid to keep your policy active.
  • Third party liability -Financial liability which you face when a third party suffers death or bodily injury is called third party liability. You also face this liability when you damage third party property.
  • Own damage premium-The premium you pay for covering the damages suffered by your car is called own damage premium. The damage suffered by your car should be through external violent means which are not in your control.
  • Liability coverage –The coverage you get for any third party liability is called liability coverage
  • Rider –It is an add-on to your insurance policy which provides additional coverage benefits. An additional premium is required to be paid and choosing a rider is optional.

Read more about Are car insurance rider worth buying?

  • Personal accident rider –This is an add-on benefit which pays a lump sum benefit if you suffer from accidental death or disablement.
  • No Claim Bonus (NCB)-This is a discount given on the renewal premium if you do not make any claim in the current policy year.
  • At fault-At fault represents the extent of your contribution to a car collision.
  • Insured Declared Value –This is the market value of your car after being adjusted for depreciation based on your car’s age. IDV represents the maximum claim which you can get in your car insurance policy if your car is stolen or in case of total loss.
  • Claim adjuster –A claim adjuster is a person who investigates and settles your claim
  • Zero depreciation rider-This is an add-on cover which waives off the applicable depreciation on your car’s parts and gives you a higher claim settlement
  • Exclusions –These are conditions and instances which are not covered in your car insurance policy.

Read more about  Some common exclusions found in a car insurance plan

 Discounts available in your car insurance policy

Did you know you can reduce your car insurance premiums through various types of discounts?

Yes, car insurance providers offer a range of discounts on your car insurance premium. Here are the different discounts which you can avail to minimize your car insurance premium outgo.

  • Vintage car discount-If you are an owner of a vintage car you have reason to rejoice. You are entitled to a 25% premium discount on the car insurance policy for your vintage car. Vintage and Classic Car Club of India certifies cars manufactured before 31st December 1940 as vintage. So, if you have this certificate, you can claim this discount.
  • Membership discount –The Motor Vehicles Act, 1988 recognizes various automobile associations in India. If you drive safely you can become a member of any one of these recognized association. This membership is recommended as you can get a 5% premium discount because of your membership. The recognized associations include Automobile Association of India (AAI), Western India Automobile Association (WIAA) and Automobile Association of Eastern India (AAEI).
  • Anti-theft device discount-If you are a careful owner and install safety devices in your car you can get a 5% discount in your car insurance premiums. The safety devices include central lock, airbags, anti-theft mechanisms, ABS, etc. which should be approved by the Automobile Research Association of India (ARAI). Read more about Some common safety features in your car
  • Discount for the differently abled -If you are a handicap and have modified your car to suit your mobility needs, you can get a 50% premium discount. Moreover, institutions which are engaged specifically in serving the handicapped are also allowed this discount on their vehicles.
  • No Claim Bonus –In any policy year if you don’t make a claim, you earn a No Claim Bonus which gives a discount in your renewal premium. The discount starts at 20% and increases every subsequent year when no claim is made. The maximum discount that you can avail is 50%. So, avoid making small claims in your policy and protect your accumulated NCB discount. Furthermore, buy a NCB protect rider to protect your discount even in case of a claim.
  • Voluntary deductible discount –If you choose to pay a portion of the claim from your pockets you are choosing a voluntary deductible. Since you are lowering the burden of claim for the insurer you get a discount of 15% to 35% in your car insurance premium. So, if you are a careful driver or have a vintage car go for voluntary deductibles and lower your premiums.

The final word!

A car insurance policy is a mandatory cover. Know all about it before you actually set out to buy a policy for your car. You would be able to understand the coverage features, choose required add-ons, understand the technical parts of the plan and also enjoy attractive premium discounts.

Read more about Discounts on car insurance you did not know about

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