Car Insurance

A Complete Guide on Car Insurance

By Admin
Apr 21, 2021

Purchasing third-party motor insurance is mandatory in India. There is no denying that purchasing an insurance policy would require a substantial amount of background reading and homework. Questions such as which policy is best suited for the car, what are the add-ons that one should buy, what is the insured declared value of the car, etc. need to be carefully considered before one can narrow down on the right car insurance policy!

So, if you find yourself feeling overwhelmed by all the information on car insurance, don’t worry because we’ve compiled everything you need to know!

Types of insurance policies

Insurance companies offer a range of insurance policies that cover different kinds of risk. The main types of motor insurance policies offered in India are as follows –

First-party insurance cover or Own Damages coverThird-party insurance cover or Act Only coverComprehensive insurance
This kind of motor insurance indemnifies the life and property of the insured against an unanticipated occurrence. Third-party motor insurance, which is liability insurance, is mandatory as per the Motor Vehicles Act, 1988. It provides the owner of the car protection against the claims of a third-party individual. This insurance policy offers coverage for eventualities such as damage caused by or to third parties, theft, arson or vandalism, riot damage, natural disasters, etc., and combines the best features of first-party and third-party insurance covers, providing 360-degree protection to the insured. 
It is optional protection, in the form of personal accident cover, which allows the insured to seek compensation for all the damages caused to the automobile as well as recover medical and other expenses incurred due to personal injury.This insurance assures only a basic level of protection to the insured for partial disability, permanent total disability, death, and property damage of the third party person. Policy covers are usually of two kinds i.e. liability coverage policy and property damage policy. The policy may be embellished with the help of add-ons for a slightly higher premium amount.
 The amounts that will be covered are – medical expenses, loss of earnings, compensation for physical disfigurement, legal assistance, etc. 

Factors to consider before choosing an insurance cover:

  • Daily Allowance – is an add-on cover that most insurance companies will offer that will give the insured to get a predetermined allowance for hiring another mode of transportation while the car is in the garage for servicing or repairs.
  • Lock/ Lost Key Replacement Cover – this add-on benefit is usually availed by those individuals who have an expensive lock and key system. Any theft or loss of the keys can entitle the insured to make a claim against the insurer.
  • Stay at a Hotel – usually covered under the road assistance add-on, this benefit is offered by the insurance company to the insured, in case the car has met with an accident and the insured has no place to put up at the moment.
  • Invoice Cover Return – this is the amount that the rider of the vehicle bears when there is a difference in the claim amount receivable and the purchase price of the vehicle.
  • No Claim Bonus – one of the best features of a motor insurance cover, the NCB ensures that the policyholder gets a certain sum from the insurer, in case no claim is made for the stipulated period. This NCB can be carried over even at times there is a change in the policy or the insurer by the insured.
  • Depreciation of Reimbursement Cover – this feature allows the policyholder to receive a full claim on the replaced parts without any deductions being made for depreciation.
  • Repair of glass, rubber, plastic and fibre parts – This can be handled by the insurer without any effect on the NCB (if an appropriate add-on is purchased by the policyholder).
  • Lost Personal Belongings and Baggage Cover – the insured will receive coverage for an anti-theft device that is approved by the Automobile Research Association of India.

What do car insurance companies not cover you for?

Car insurance companies do not cover the insured for the standard exclusions mentioned below –

  • The person driving the car during the time of the accident was underage.
  • The person driving the car during the time of the accident lacked a valid driver’s license.
  • The person was voluntarily intoxicated at the time of the accident.
  • The damages and losses suffered during war or a nuclear attack.
  • The vehicle is stolen thereafter and is not in the possession of the insured.
  • The car was being used for any illegal purpose at the time of the accident.
  • The accident was pre-planned or premeditated.
  • The damages are a result of contributory negligence i.e. the insured has not exercised caution/due care. For example, turning on the car ignition even when there has been water ingression in the engine due to incessant rains.
  • The damages were caused as a result of consequential damages that occurred after the occurrence of the actual accident. For example, the insured continues to drive the car even after the accident was caused, worsening the condition of the car.

Please read the offer document carefully to know any other additional exclusions your insurance company has made.

How to pick the right car insurance policy?

Before committing oneself to an attractive car insurance policy, the insured must ask himself or herself the following set of questions –

  • Is the Insured Declared Value of the car fair and reasonable and closest to the market rates?
  • Is the voluntary deductible limit reasonable and proportionate to premium amounts that you wish to pay?
  • Are the premium rates competitive?
  • Are there multiple add-ons available? If so, will it enhance the overall protection of my automobile significantly at a reasonable cost?
  • Is there a need to submit my previous claims history and will this affect the rate at which the premium is to be paid?

If the answers to the first four questions are in the affirmative and the last question is negative, then opting for that insurance cover is advisable. Always seek to maximise benefits and minimise costs.

Also, in terms of means of making payment for the premium, there are multiple options available and that too must be considered while deciding on which plan to opt-in for. 

What are add-ons and which ones should you pick?

The add-on covers are customisations that the insurance company offers to the insured. The add-ons clearly distinguish one policy from another and reflect the personality, tastes, and preferences of the purchaser. Insurance companies may offer a range of add-ons such as zero-depreciation cover, consumable cover, return to invoice cover, engine and tyre protection cover, roadside assistance, etc. One must opt for a policy that reaches the closest to all the needs of the policyholder. Usually, there are no bounds to the number of add-ons that can be purchased, but it is advisable to choose only those add-ons that enhance one’s coverage.

Factors that can affect your premiums

The main factors that influence your motor insurance premium are –

  • The geographical location of the insured
  • Personal factors such as the sex of the insured (females are considered to be safer drivers than males and hence the premium charged is lesser), the marital status of the insured (married persons have to pay lesser than single individuals), age of the insured (the older you are the lesser the premium you will have to pay), etc.
  • Type of engine of the car (car insurance for a diesel engine is more than that of a petrol or CNG engine).
  • Type of coverage (usually a comprehensive car insurance cover has a higher premium than a simple third-party insurance cover).
  • Add-ons opted in will also increase the premium amount.

The insured can take a few measures to optimise the premium amount by opting in for only the benefits that are a necessity. Use the help of an agent, broker, or even another purchaser of car insurance to choose the best-suited plan for your needs.

What pay-out options should you pick?

Both forms of car insurance pay-out options namely, cashless claim or reimbursement claim, come with their own benefits and drawbacks, as listed below –

BasisReimbursement claimCashless claim
BenefitsNeed not get the car repaired in the network car garages of the insurance company.No payments need to be made by the policyholder upfront. The insurance provider will settle the claims.
DrawbacksPayment has to be made by the insured and reimbursement will be received only if all the documents are duly submitted.

Might not be completely cashless as certain deductibles and default depreciation have to be covered by the policyholder.

The car will be repaired in the network car garages of the insurance company.

Should you pick a multi-year policy or a single-year policy?

A multi-year insurance policy is a boon to all policyholders offering them a chance to secure their interests for a period of three years at a stretch, saving them from the hassles of yearly insurance renewals. It comes in three variants i.e. 

  • the long-term comprehensive policy which has a third party cover for three years with an own damages policy
  • a long-term short term own damages policy wherein the own damages cover will only last for a period of one year
  • the long-term third party cover which offers only third party insurance cover with no protection for personal injury to the insured and the damages caused to the insured’s car.

A single-year policy in comparison is for a shorter time period i.e. one year and does not save the insured of the hassles of yearly renewal. In case the car has been purchased recently, i.e. after September 2018, then a multi-year policy is mandatory in nature. The option as to whether or not to choose a multi-year policy exists with only the older cars and looking at the advantages it has to offer, it would make sense for the older cars to opt into this too.

Luxury car insurance and vintage car insurance - do you need to know what they are?

Vintage, Classic, Antique, and luxury cars have subtle differences that exist between them and knowing this is crucial to determine the kind of insurance coverage that one must opt for. Different guidelines offer different time periods for the classification of a vintage car, however, commonly, cars built between 1919 to 1930 are considered vintage cars. Unlike antique and classic cars, vintage models do not lose value if they are embellished or customised. The charm of a vintage car comes with a cost – it needs high maintenance and constant upkeep and hence, third-party insurance might be insufficient to cover the expenses incurred. Even a luxury car, which is state of the art and expensive, needs several add-ons such as an engine protection cover and the like, to offer 360-degree protection to the car.

Conclusion

The thought of your new car running into trouble worries you, driving you to be extra cautious. Use this caution in making the right choice of insurance for your beloved car. Carefully consider the terms and conditions of various policies and weigh the benefits and disadvantages of one policy over the other. Prudence dictates that you invest sufficient time and energy into this before you invest your money.

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