Car Insurance


Car Insurance In India – Everything You Need To Know

16th September 2022 8min read 523 views

Purchasing a car has become one of the necessities in India, specially post COVID. From office commutes to everyday chores and weekend excursions with family and friends, cars have become an indispensable mode of transport. Moreover, with the easy availability of auto loans, purchasing a car is not a dream anymore.

However, car insurance is a vital aspect that deserves every new buyer's attention, apart from picking the right model, specifications, and colour. But how does car insurance work? What are the different types of car insurance policies? Let’s find out in detail.

What is Car Insurance?

Car or four-wheeler insurance protects you against potential financial losses arising due to accidents or unfortunate events. You pay premium, and in return, the insurer promises to cover your losses in case of the covered events as per the policy terms.

What does Car Insurance Premium mean?

The insurance premium is the amount you pay to the insurer for purchasing a car insurance policy for a specific period. This premium is decided based on your vehicle, extent of coverage and other possible risks.

What are the Different Types of Car Insurance?

To better understand this, it is essential to also know about the different types of coverage in car insurance. There are two different types of car insurance -

  • Third Party
  • Comprehensive Cover

Here’s what they mean-

What is Third Party Car Insurance Cover?

Third-party four-wheeler insurance policy only offers coverage for losses and damages incurred to a third-party vehicle, property, or person due to a car accident.

As per the Motor Vehicles Act, 1988, it is mandatory to have at least a third-party cover. Driving without a third-party cover is a punishable offence that could lead to penalties and even imprisonment.

What is Comprehensive Car Insurance Cover?

A comprehensive car insurance policy offers holistic protection of third-party insurance with coverage for own damages and accidental injuries/deaths. It also provides financial protection against car theft and damages caused to the vehicle by a natural calamity or malicious act.

As this type of motor insurance offers more extensive protection, it is more expensive than basic third-party coverage. But the added protection makes the comprehensive policy a highly recommended option for car owners.

Differences Between Third-Party and Comprehensive Car Insurance

Parameters Third-Party Car Insurance Comprehensive Car Insurance
Coverage Only covers third-party liabilities Covers third-party liabilities and own damages and injuries
Mandatory by Law Yes No, but highly recommended for a wider scope of coverage
Premium/Cost Fixed every year by IRDA based on the car's engine capacity Fixed by insurance providers based on various factors
Customization No Yes, you can customize the plan with add-ons, adjusting IDV, and more
No Claim Bonus (NCB) No Yes, for every claim-free year, that keeps increasing, up to 5 consecutive years, and then remains constant until a claim is filed

Why is Car Insurance Important?

Accidents happen when you least expect them. Under any circumstances, if you bump into another vehicle that causes bodily injuries to a third-party driver or his property, then only car insurance will help you manage your liability. This is the reason why it is important to have a car insurance policy.

As per the Motor Vehicles Act 1988, every vehicle plying on the road needs to have at least third-party car insurance, as it is mandatory in India. Also, one should not buy the policy because it is compulsory rather, it is extremely helpful in covering your financial or legal liabilities that may arise due to an accident. The penalty for driving without auto insurance is Rs. 2,000 or imprisonment of up to 3 months. If you’re caught without valid insurance for the second time, the penalty increases to Rs. 4,000 or imprisonment of up to 3 months.

While a 3rd Party car insurance is mandatory, you can take this protection further by investing in a feature-packed comprehensive policy that will safeguard you against third-party and your own damages.

Advantages of Car Insurance

While a 3rd party car insurance is a must if you want to save yourself from fines, here are some of the top advantages of motor insurance, especially in a comprehensive policy.

Coverage Against Damages, Injuries, and Death

One of the most significant third-party insurance benefits is it protects the policyholder against the financial and legal liabilities of damages and injuries caused to the third party.

But what about damages and injuries caused to you? With comprehensive coverage, you get protection for own damages and injuries too.

Protection Against Theft and Natural Calamities

You also get valuable car insurance benefits with a comprehensive policy. For instance, you get protection against car theft and damages caused by a natural calamity. Moreover, if the vehicle damage is beyond 75%, it is considered to be ‘Totalled’ by the insurance providers. In such cases, the policyholder is eligible to receive the vehicle's maximum IDV (Insured Declared Value) as per IRDA guidelines.

Extensive Customization Options

While third-party car insurance does not offer customization options, you can personalize a comprehensive policy. For instance, you can choose from a wide range of add-ons to further extend the scope of your policy. In addition, you can adjust the IDV of your vehicle while purchasing motor insurance online to increase or decrease your total cover and the policy premium.

Lower Premiums with No Claim Bonus (NCB)

The concept of the No Claim Bonus (NCB) for comprehensive policies encourages car owners to renew insurance on time and file lesser claims. With NCB, you get premium discounts for every claim-free year. A No Claim Bonus Protection add-on protects the accumulated NCB discount even if you file a claim.

How to Buy Car Insurance Policy Online?

Thanks to digitalization, you can purchase vehicle insurance online from the comfort of your home or office. Here are the steps you can follow to buy motor insurance online-

  • Visit the official website and click on ‘Car Insurance’
  • Enter vehicle details like Registration Number, Model, Fuel Type, Variant, and Registration State, and click on ‘Submit’
  • After submitting the details, you’ll be provided with a list of all the different types of car insurance plans offered, along with their features and premium details
  • Choose a plan after checking the features, benefits, and policy wording
  • If you’ve chosen comprehensive 4-wheeler insurance, you can also customize the plan with add-ons
  • After selecting a policy, click on ‘Buy’
  • You can now pay the premium of your car insurance policy online
  • After successful payment, you will get the policy documents in your email inbox

Four Wheeler Insurance Terms You Need to Know

Things can look a little confusing if this is the first time that you’re purchasing four-wheeler insurance online. Here are some important car insurance-related terms that will make it easier for you to understand policy wordings and features-

What is IDV in Car Insurance?

Insured Declared Value or IDV in car insurance is the maximum coverage amount your vehicle can be insured for. In case of car theft or total loss, you are eligible to receive the amount matching the IDV of your vehicle from the insurer. Insurers calculate IDV by subtracting depreciation from the vehicle's current market value.

The IRDA has already fixed the depreciation rate per the vehicle's age. Take a look-

Vehicle Age Depreciation % to Calculate IDV
Up to 6 months 5%
6 months to 1 year 15%
1 year to 2 years 20%
2 years to 3 years 30%
3 years to 4 years 40%
4 years to 5 years 50%

If the vehicle is older than 5 years, the IDV is calculated through mutual consent between the insured and the policyholder. Moreover, at the time of purchasing comprehensive insurance, you have the option to increase or decrease the IDV. But note that the IDV amount directly impacts policy premiums.

Alternatively, policyholders can purchase Invoice Value Protect cover. With this, you get the total invoice value, registration fees, and road tax if the car is totalled or stolen.

What is NCB in Car Insurance?

No Claim Bonus or NCB in car insurance is the premium discount a policyholder is eligible for when no claims are filed during the policy period. The bonus increases with every no-claim year for up to 5 years. The IRDAI has set the rate of NCB discounts for complete transparency.

For car insurance, the NCB rates are as follows-

No. of Claim-Free Years NCB Premium Discount
1 year 20%
2 years 25%
3 years 35%
4 years 45%
5 years 50%

Note that NCB benefit is only available with comprehensive cover, not third-party liability cover.

What are Deductibles in Car Insurance?

Car insurance has two types of deductibles- compulsory and voluntary. The compulsory deductible is mandatory in every car insurance policy. It means the policyholder will pay a small percentage of the claim amount when a claim is filed after an accident.

But policyholders can also opt for a voluntary deductible by agreeing to pay more from their pockets. Higher voluntary deductible aids in reducing policy premiums.

Tips to Reduce Your Car Insurance Premium

There are also several ways to reduce your car insurance premium, such as-

  • Purchase ‘Pay As You Go’ Car Insurance- It is a new category of usage-based comprehensive car insurance wherein you pay premiums for a fixed number of kilometres. If you are someone who drives occasionally, it can be a pocket-friendly choice.
  • Switch to a new insurer - If your insurance company is charging a high premium for the car insurance policy, you can switch to a new insurer. Getting the same benefits at a nominal price is always a better deal.
  • Increase Deductible- You can opt for a higher voluntary deductible to reduce your policy premiums.
  • Reduce IDV- IDV is your vehicle's maximum car insurance coverage based on age and its value. While purchasing a comprehensive plan, you can reduce the IDV to lower the insurance premium. However, lowering the IDA also reduces the coverage.
  • Avoid Filing Small Claims- In some cases, it can make more financial sense not to file a small claim as you’ll lose the NCB. You can pay for the minor repairs from your pockets and use the accumulated NCB for premium discounts on policy renewal.
  • Purchase Car Insurance Online- An online motor insurance policy is generally cheaper than an offline one.

What are Add-on Covers? Why Do You Need Them in Your Car Insurance?

While purchasing a comprehensive car insurance policy, you can also choose a variety of add-ons that are not available with 3rd party car insurance. These add-ons slightly increase the policy premium but offer significant benefits.

Some of the most popular add-ons you can consider are-

Depreciation Protection Cover

When you file a claim to replace parts after an accident, insurers deduct an amount per the vehicle's depreciation rate. With the Depreciation Protection or Zero Dep Car Insurance add-on, the deducted depreciation amount is reimbursed to the policyholders.

NCB Protect Cover

You lose the accumulated NCB discount when you file a claim. But with an NCB Protection Cover, you can use the accumulated NCB discount while renewing your policy, even if you’ve filed a claim in the previous policy year.

Invoice Value Protect Cover

The IDV of a car is calculated by deducting the depreciation rate. But with the Return to Invoice or RTI add-on, if the car is stolen or totalled, policyholders are eligible to receive a claim amount equal to the invoice or original value of the car when it was purchased. However, the cover is only available for cars up to 3 years old.

Consumables Cover

A comprehensive car policy generally does not offer coverage for consumables such as engine oil, oil filters, lubricants, etc. Policyholders should pay for these consumables when a claim is filed. But with a Consumables Cover, the insurer will cover expenses of such consumables.

Engine Protect Cover

A lot of things can go wrong with a car’s engine. The Engine Protection Cover benefits car owners by protecting them from the high expenses of repairing the engine. With this add-on, the insurer will cover engine damages caused due to lubricating oil leakage, water ingression, or engine or gearbox failure when trying to start a wet engine.

EMI Protect Cover

The EMI Protection Cover can be beneficial if the cars are taken on auto loans. With this add-on, the insurer will be responsible for paying the monthly EMI throughout the duration when the insured car is under repair due to a damage/loss covered under the car insurance policy.

Road Side Assistance Cover

This is one of the most important add-on covers. In this, the insurance company not only arranges for an on-the-spot technician but also takes responsibility for towing the car to the nearest garage in case it is immobile. Note that the extent of this cover may vary based on your policy.

Importance of Renewing Your Car Insurance Policy in Time

Here’s a rundown of some of the reasons why timely car insurance renewal is important-

Mandatory by Law

As you probably know by now, driving without valid 3rd party car insurance is a punishable offence. An expired insurance policy is similar to not having insurance at all. With timely vehicle insurance renewal, you can be a law-abiding citizen and protect yourself from hefty penalties.

Remain Protected at All Times

A valid car insurance policy is the most effective solution to protect yourself from the financial liabilities arising from an accident. If your insurance has expired, you'll lose the insurance coverage and will be responsible for managing the financial and legal implications arising out of an accident.

Retain NCB Discounts

No Claim Bonus (NCB) is a great way to reduce your insurance premiums. But if you don’t complete car insurance policy renewal before expiry, you can lose the accumulated NCB. You’ll then have to purchase a new car insurance policy without any NCB discounts.

Peace of Mind

Not having the safety net of a valid insurance policy is risky. On the other hand, timely renewal brings immense peace of mind and a sense of security. Moreover, with vehicle insurance renewal online, you can renew your policy within minutes.

How Do I Renew My Expired Car Insurance Policy?

Here’s what you can do if your car insurance policy is expired-

Renew Policy within the Grace Period

Some insurers offer a grace period for renewing car insurance. Depending on the terms and conditions of the policy, you might be able to renew your expired policy within the grace period of 7-30 days. You can also switch to a new insurer within the grace period to find a better deal.

But note that it is not mandatory for insurers to offer any grace period for car policy renewal. It is only a facility offered by some insurers.

Contact Your Insurer

In case your policy has expired and there is no mention of any grace period in the policy documents, you can contact your insurer. You can try to explain why you could not renew your policy on time, and the insurer might allow you to renew vehicle insurance online or offline.

Allowing car owners to renew the policy after expiry is up to the discretion of the insurance providers. You might also have to pay the penalty to renew the policy after expiry.

Purchase a New Car Insurance

If you didn’t complete motor insurance renewal before expiry, or the grace period has expired too, the only option is to purchase a new insurance policy. You’ll also lose the accumulated NCB if you fail to complete car insurance renewal online or offline within the grace period.

You can follow the same steps you used to purchase your previous policy to buy a new car insurance online.

Ensure Enhanced Protection with a Feature-Packed Car Insurance Policy

We’ve tried to cover all the critical aspects of car insurance in this post. Use this information to browse through the top vehicle insurers in the country and purchase a plan that best matches your insurance needs.

Also, online car insurance purchase and renewal is simpler, faster, convenient, and more affordable too. Before purchasing a policy, ensure that you read the policy wordings to understand the inclusions and exclusions in detail. Contact the insurer in case of any queries or if you need any assistance in selecting the right car insurance plan.

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