When it was time to get our first car and the insurance, we were looking into the various types of car insurances available in India. As a newbie in Indian market, the various types as well as the coverages that are available are confusing. After lot of research, we have build a definitive guide of buying car insurance in India.
Is car insurance compulsory in India ?
Motor insurance or car insurance is mandatory by law in most countries. The coverage of the mandatory policy can vary from country to country based on your car age.
To no surprise, car or motor insurance is also mandatory by law in India. The Ministry of Road Transport and Highways in India listed the Indian motor Act– which states that the third-party insurance cover is compulsory in India. More about what is third party insurance in India is explained later in this article.
Also, according to Honourable Supreme Court of India, new cars and two wheelers have to purchases long term insurance plans. The long term insurance plan for cars will be three years and for two years will be five years. This means the initial cost of your purchase will be higher, but you don’t have to worry about renewing your insurance for a while.
However, this does affect your NCB or No Claim Bonus. If you are new to NCB or want to know what is NCB in insurance, find an explanation below.
What is car insurance in India
For those who are new to the concept of insurance, here is a short explanation of what is car insurance.
An Insurance policy is a contract between you as the holder of the policy and the insurance company as the insurer. This contract lays down some coverages and liabilities that the insurer will bear on behalf of you, provided you have paid the premium and met the all the terms and conditions of the policy. On the other hand, you as a policy holder is also required to do your best to declare everything truthfully and abide by the conditions laid down in the insurance contract.
Based on the various terms and conditions in the insurance policy, you may receive various kinds of benefits. These terms and conditions are expressed by the type of cover you purchase as well as any extra conditions mentioned in the policy. Hence it is necessary to understand the type of policy you purchases as well as read the fine prints of the policy documents.
Types of car insurance in India
There are two main types of car insurance in India. However you might get confused by the various permutations and combinations of coverage the companies offer to package different types of insurance policies.
The two major types of car insurance in India are:
- Third party car insurance.
- Comprehensive car insurance.
Third party car insurance in India
To explain it quickly, A third party car insurance is a contract between you and the insurer, which protects you from the liabilities or any costs you have to pay to a third person due to your car usage and if a claim is made. Third party car insurance will not cover you or your car from any physical damage.
The insurance contract is protecting you from monetary legal liabilities. Thus you may not end up paying a hefty amount from your pockets, if the third person dies, has disabilities, injuries or has his or her property damaged. The limit of the payment made by the insurer is however based on the amount of premium you pay and the coverage you opt for.
This type of cover is mandatory by law under the Motor Vehicle Act, 1988.
Comprehensive car insurance in India
Comprehensive car insurance coverage is the other kind, which protects the minimal requirement of coverage to liabilities against third party but also includes extra coverage to protect you and the insured car from loses or damages.
Comprehensive coverage can also optionally cover you from damages and loses due to theft of your car, natural calamities, riots, fire as well as from anti social elements. These kind of protection brings in more peace of mind and it wise to opt for comprehensive when possible.
A comprehensive car insurance policy in India can be further enhanced by adding various add-ons or optional benefits. Some of add-ons or optional benefits you can add to your policy are accessories cover, engine protection, no depreciation, medical expenses etc. Learn more about various add ons on car insurance in India here.
Comprehensive car insurance provides more coverage and hence is indeed expensive compared to third party insurance only. On the other hand you might want to opt for third party insurance if it makes more economical sense to repair your own car when it is bit aged.
When should you opt for Third party insurance v/s comprehensive car insurance in India.
Comprehensive car insurance coverage is what most of us would opt for, if we want to have a better peace of mind and protect our car, drivers and passengers from damages and liabilities. However, the cost of comprehensive car insurance in India is quite high compared to third party only or TPO insurance plan.
Having said that, if your car has aged and if it would make more economical sense to pay for your own damages or buy a new car on theft- than to pay for your insurance policy, you should opt for TPO plan.
However, if you have a new car or you are a new driver, you should opt for comprehensive cover. Also, if you don’t want the hassle of managing damages to your old car, or if you own a vintage priceless car, you should opt for comprehensive cover. Thus you would have better protection of your vehicle in that case.
How is car insurance premium calculated in India based on IDV
The premium you will pay for your policy is calculated and based on the Insured Declared Value or IDV of the vehicle.
IDV or Insured declare value is the current value of your car. The market value of your car reduces as it ages. Thus the premium you should be paying to insure that valued car should reduce with the car’s age as well.
Rightfully, as your car ages, the IDV will reduce and hence you’ll pay lesser premium. The higher the IDV or declared value, higher is the premium you pay.
IDV or Insured declared value also impacts the sum insured by your policy. For e.g, If you insure a car worth ₹ 13 lakhs, but you declare the IDV as ₹ 2 lakhs, the policy will insure you only for 2 lakh rupees. Hence, it is important to note the IDV of the car mentioned in your policy to make sure you get the best benefits.
What is not covered under car insurance in India
There are various factors that may not be covered based on the policy you choose and the add-ons you opt for. Various insurers do package extra coverage for higher premium. So if you have opted for those, then it may be covered.
However , in general the below are not covered under a general car insurance policy.
- Wear and tear of vehicle : Common wear and tear will not be claimable, as it is something which is expected on the long run.
- Loss or damage due to nuclear perils or war : Damages under such incidences are not covered by the policy.
- Mechanical or electrical breakdown: Mechanical and electrical breakdown can be a result of poor maintenance of car and they are subject to occur often. Hence these are usually not covered by the policy. Some insurers , do sell extra adds on to cover your consumable goods.
- Driving the car outside the permitted geographical area: The policy is limited in its coverage based on the geographical area mentioned in the policy documents. Your usage and the resulting claims if any outside this region is usually not covered by the insurance policies.
- If the vehicle is driven my unlicensed driver. : Driving without license is really bad and unethical. It puts you as well as innocent citizens at risk. If your car is driven by unlicensed driver, the claim will be rejected.
What is NCB or No claim bonus in insurance in India
When someone is new to car insurance terminologies, it is obvious to ask the meaning of NCB or No claim bonus under insurance.
No claim bonus or NCB is the discount offered by insurance companies in India to the policy holder, if there were no claims made by him or her during the policy period. This bonus is applied to the new renewal policy. NCB or no claim bonus is a way for the insurer to thank you for being a good driver.
Good driving should indeed be appreciated. Discount on renewal of insurance for good driving is a global practice and very much practised in India as well.
NCB starts from 20% and can be a maximum of 50% discount on the own damage premium. This bonus or discount increases by 5% for every year of no claims. NCB is tied to the main driver/ policy holder and hence, even if you switch cars it can be claimed on the new one.
Read more about NCB or No claim bonus on Insurance in India in our detailed article.
What are the various Add ons on car insurance in India
One can enhance his or her vehicle insurance policy with various add-ons and have better peace of mind. These add ons are provided by various insurance companies in India and not all may be underwritten by them.
When you compare your vehicle insurance policies, you should see who offers various kinds of add-ons and opt for those if you need them.
Below are few popular insurance add ons and their explanations:
NCB Protection
NCB or No Claim bonus is a bonus or discount offered, if you do not claim on the policy. This increases by 5% for every year of non claims.
However, on the other hand, rightfully- if you do make a claim, the NCB reduces for next year. This is so that good drivers are rewarded while bad drivers are penalised. But in certain cases, it may happen that you end up claiming for not your fault. Unfortunately your NCB will still reduce in such cases.
NCB Protection – as the name suggests is a cover to protect your NCB from reducing. This is an extra add-on you add to your policy- so in cases where you do make a claim, the NCB will not be reduced.
However this comes with certain terms and conditions. Some insurers allow the protection, as long as you renew with them and not switch insurers.
What is Zero depreciation or bumper to bumper cover
A matter of fact is car ages. So does the parts and components that makes up your car. Following this fact, when you claim , the insurers will only cover the depreciated price of your car’s parts. Zero depreciation cover or bumper to bumper cover helps you protect this.
With zero depreciation or bumper to bumper cover, if you end up claiming for your car’s parts- the insurer will pay you the entire cost of the parts repairs than just the depreciated value.
This cover is also known as ‘Zero Dep’, or most commonly ‘bumper to bumper cover’.
24/7 roadside assistance cover in India
Breakdown of car happens. Your car may break down in the middle of the road due to non maintenance or say tyre issues.
You may also get stranded due to battery issues, alternator issues or need emergency fuel. One may also need emergency medical assistance in such cases.
Break down of cars and related assistance is not covered by insurer in general policies. This add-on provides this cover.
With 24/7 road side assistance insurance cover, the insurance companies will provide you basic road side assistance and help you get your car to nearest service station. Price of such add-ons is mostly nominal and it may be a good add-on to opt for.
Please do read the policy documents to find any terms and conditions or geographical regions covered under this coverage.
Engine Protector cover under car insurance
If due to unforeseen circumstances of floods or when your vehicle is submerged in water, there are chances of engine ceasing due to engine cranking.
Such incidences due to non accidental conditions are not generally covered by normal insurance policies. When you opt for engine protector cover, you get coverage for your engine during such incidences.
If you own a vintage or luxury car and your engine would be hard to replace, you should opt for such coverage.
Consumables cover for car insurance
Normal wear and tear and small parts in your car are usually not covered in your general insurance. Consumable cover helps you cover damage on stuffs like nuts and bolts, gas bearings, distilled water, oil filter, fuel filter, engine oil, break oil etc if these need to be replaced as a part of accident claims.
Personal accident cover
This cover helps you as an owner to insure yourselves for death or disability. The sum insured is paid to the owner in case of disability. On the other hand the nominee will be paid the sum insured in case of death of the owner.
Driver cover and passenger cover
If you have a driver who is not the insurance holder, you can cover him or her by opting for driver cover. Non owner cover on the other hand is a liability policy for those who drive the car but don’t own one.Passenger cover, helps protect other passengers in the car for death and disabilities.
How to compare car insurance quotes in India
Given the various permutation and combinations of coverage, one will be easily confused. In worst cases, he or she might be under wrong impression of the protection available from the purchased policy. Only when it comes to claims, most of us do realise about various clauses that didn’t offer enough protection.
Learning and understanding insurance terms helps you make an educated purchase and thus avoid surprises during your claims. It is recommended to compare various insurance quotes based on fine prints to get the best deal.
Below are few steps you can take to compare car insurance quotes in India.
- Begin with deciding the type of cover you need. Third party might make sense to some while the complete cover of comprehensive might be ideal for others. Economics of shelling out your own money than paying for third party might also be a factor here.
- Once you have decided on the type of cover, look for the various coverage options. Decide what different add ons you would need and what would be good to have. Look into the sum insured of various opt in covers.
- Compare the insured declared value of various quotes and see what makes more economical sense.
- Look into the premiums you are paying and also the deductible or excess you have to pay in case of claims. Offset them accordingly to compare apples v/s apples.
- After you have finalised the quotes, compare the various insurance companies and their claims process.
- Look into various garages the insurance companies support as well as any cashless facilities they may have.
- Have a look at their claims settlement process, claim settlement ratios and NPS scores. These tell you about customer satisfaction with their claims teams.
You can easily compare quotes from various insurers online and make an informed decision.
Do you need car inspection for car insurance policy ?
Car inspection is the process of someone visiting you and inspecting the to be insured vehicle in person before the policy can be underwritten. For new cars, the car inspection is not needed.
However, if your previous policy has been expired for more than 90 days, or if you are switching from a TPO or third party only cover to comprehensive cover, a car inspection might be deemed necessary by the insurer.
Now with all the above information, we hope that purchasing your own car insurance policy is bit more simpler. We hope you can now make appropriate purchases. Stay educated and make the right money moves my friends !
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