We all have dreamt about owning a car but when we do get to fulfill our dream, first we have to get car insurance. When I bought my first car, there was a lot of jargon thrown around by the dealer about insurance which overwhelms people into just submitting and telling the dealer to do what’s best.
In this article, I will clarify all you should know about car insurance so that when you do buy your ride, you are not taken for a ride.
Types of motor insurance as per vehicle category
There are primarily 3 types of motor vehicle insurance policies as per vehicle category
Two wheeler insurance policy
As evident from the name, this covers motor-operated two-wheelers employed for personal use. Covers both property damage and bodily injury.
Four wheeler insurance policy
Again, as evident from the name, this covers motor-operated four-wheelers employed for personal use. Covers both property damage and bodily injury.
Commercial vehicle insurance policy
All vehicles which are not employed for personal use -like trucks, buses, autos, etc have to be covered under this policy. Again, covers both property damage and bodily injury.
Types of covers in car insurance
While the type of vehicle is evident from the type and purpose for which the vehicle is bought. Classification on the basis of cover is something that is voluntary and can be a decision where you lose or save money. There are primarily 3 types of covers that are sold in India.
Third party damage (TP)
This covers the loss or damages to the person or property of the 3rd party that is involved in the accident. This cover is mandatory for running a vehicle on road in India. This does not cover the damage to own car, while it does cover the personal injury during accident.
This is the cheapest cover as the incidence of 3rd party claims is very low on this.
Own damage (TPD)
This is for personal and own property’s insurance cover. Apart from harm in accidents, this also covers the damage to cars that may arise from man-made calamities (riots, fire, etc) and also natural calamities (earthquake, floods, etc). This cover is not mandatory in India and is also more expensive than a third party cover.
Comprehensive cover (TPD)
This is basically the amalgamation of third party and own damage and covers both the aspects. If you want to take both third party and own damage, then taking comprehensive cover can be slightly more cost effective.
What is IDV in car insurance
IDV is Insured Declared Value and is basically the maximum amount (Sum assured in other policies) that the insurance company will reimburse in case of fire, theft or any other such total loss where the repair value is more than the IDV.
IDV is fixed on the basis of the manufacturer’s listed selling price of the vehicle less the depreciation. The schedule of depreciation which depends on the age of the vehicle is as follows
|Age of the vehicle||Depreciation|
|Less than 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%|
|More than 5 years||Mutually Decided|
The IDV of accessories should also be set and insurance included in case the value is high. Otherwise, their value may not be reflected in the insurance of the car alone. You might be able to get lower premiums by setting a lower IDV but it is not suggested if you use the vehicle regularly.
There are no free lunches – never more true than car insurance.
This is a small amount – generally either Rs 1000 + tax in case of a vehicle below 1500cc and Rs 2000 + tax above 1500cc. These are deducted from the repair value each time you file a claim.
This is probably to dissuade very small or frivolous claims which might add to the burden of paperwork and compliance and also increase claims overall.
You maybe able to get reduced premiums if you are willing to voluntarily increase this deductible. Generally, unless you think that you will not claim or you don’t drive too much, this might not be a great idea.
How to claim car insurance
Own damage claims are easy enough – just tell the company that you made this mistake and fill a few forms, show your driving license and you can get the claim less the deductible applicable.
There are a few conditions which should be fulfilled, some prominent ones are:
- The driver should have a valid license
- Driver must not be in an intoxicated state at the time of the incident
- The driver should have the permission of the insured if driving his vehicle
- The driver should not be on a specific exclusion list in the car insurance policy
Third-Party claims are generally a tough nut to crack especially when the damages are minor – in such cases catching the culprit is not possible in most cases, in others getting him to admit his mistake is. Morning Spoiled!
If these 2 things are achieved – congrats. The steps then would be
- Lodge a police complaint with details – both parties sign
- Get photo/copies of the wrongdoer – other party 🙂
- Inform the insurance provider of the other party (also inform your insurance company) about the accident and the police report
- Submit vehicle in service station if cleared from police and insurance company and inform the service station guys about the other party’s insurance information
Afternoon and perhaps Definitely Spoilt – Leave wasted – Not claimable!
Add ons – do they add value?
There are various add-ons which can be purchased to improve the cover of the vehicle. While these do increase the claim in case of a mishap, however, the value of premium also increases when these are taken. Hence, these should be taken basis the need and probability that these might come into effect.
As stated above, the IDV of the vehicle decreases with age, and hence if a loss happens after say 2 years, you might recover only 70% of the value.
However, let’s say that you have barely used the vehicle, and it’s in almost new condition. Now, in this case, getting 70% will not compensate for the amount you need to spend to get a similar vehicle or a part replaced. In such a case, getting a zero depreciation might make sense in which the insurance company will not deduct depreciation charges from the claim.
This is also called bumper to bumper insurance cover and this is especially beneficial in case
- You are not an expert driver
- You are concerned with getting every minor dent repaired
- Your car is new or expensive since the spare parts would be costlier
- You live or travel to accident prone areas
Return to Invoice
Return to invoice covers the gap between the IDV which is the registration charges, tax, and other components so as to bring the insurance amount to the on-road price. It will help you get the purchase price in case of a total loss due to fire/ theft etc.
This might be especially beneficial to people who travel or live in incident prone areas or don’t have a very safe parking spot etc.
Engine & Gear Box Protection Cover
Normal insurance policies don’t cover non-accidental damage to the engine or gearbox. This may be due to improper oil maintenance or any other issues. If you want to include this cover – this add-on has to be taken. Generally, if you have proper parking, don’t drive in flooded areas, and take good care of the vehicle, this may be skipped.
No Claim Bonus (NCB) Protect Cover
Generally, you get a no claim bonus – actually a discount on the premium of the 2nd year, if you don’t make any claim in the 1st year. This coverage kicks in to get you a no claim bonus even if you have taken claims in a year.
This might be especially useful if you have a streak going on as the % discount keeps on increasing with no claims year on year. The general discount schedule is as follows
|No claims made in preceding 1 year of insurance||20%|
|No claims made in preceding 2 years of insurance||25%|
|No claims made in preceding 3 years of insurance||35%|
|No claims made in preceding 4 years of insurance||45%|
|No claims made in preceding 5 years of insurance||50%|
Because of this, it might also make sense to not make very small claims as after the compulsory deduction, you might lose out more on ‘no claim bonus’ than you get on your car insurance claim for repairs.
Another add on to your car insurance policy is Roadside assistance. This comes in handy if you take long trips or cross country journey. This can offer a host of benefits like technical and mechanical assistance – online if possible or via a visit of a professional and towing vehicle if necessary. It also provides for a cab or accommodation according to the situation.
I would recommend it as a must if you take cross country trips and have little knowledge or willingness of car troubleshooting.
There are many other add-ons also available which can be checked out during the purchase of the policy and individual suitability can be gauged before purchase.
Recommended Read: How to buy the right health insurance for parents?
Is it necessary to take insurance from the dealer?
This is something that is at the back of the mind of everyone while purchasing a car. Dealerships offer pre-bundled insurance and a streamlined and convenient process which saves time and energy. However, there are disadvantages also – mainly issuer, price, and feature comparison is absent as generally, the dealer will have a tie up with 1 provider only.
Detailed comparison can be found here
What happens if my friend wrecks my car?
Generally, if you have collision and liability coverage and have permitted your friend or acquaintance to drive your car and he/she has a valid driving license it should be ok. Minor damages should be taken care of by your insurance. Major damages or bodily injury to a person might be dependant on the situation and policy terms and conditions.
You may want to read more here.
Other important points
- You might want to take extended accident cover in order to cover the bodily injury to passengers and also a driver if you employ one
- In case of claim rejection, you have 12 months to challenge that in court. If you don’t you cannot contest the decision after this period.
- Interestingly if you drive through a waterlogged area and crank up the engine and get water damage – this might not get covered under insurance – Hydrostatic loss. So, beware of monsoons.
- You might face stiff penalties (as higher premiums) if you let your policy lapse and also buffer period gets over – generally 90 days.
- Multiple car insurance policies can be clubbed and you may be able to avail of a bulk discount
- As mentioned above, third-party claims are tedious to file so unless you are going to lose a bomb on no claim bonus – don’t run after the other driver and get into a road rage situation because it might make a bad day worse.
- ‘No claim bonus’ of the old car can be transferred to the new car’s policy – Your good karma will not go to waste.
- You can’t claim incidental damages from insurance – meaning if you are going to the airport for vacation and get into a road accident and miss the flight you cannot claim flight or vacation expenses. Similar to not being able to claim, office-leave expense above. 🙂
Take insurance – 3rd party is mandated by law. Comprehensive is mandated by common sense. Compare between providers – easy to compare online and find the lowest premium of good providers with relevant add-ons.
You could pay for the car – you can definitely pay for its insurance.
Ravi is an IIM ranker with over 9 years of work experience and has helped optimize the growth and financial performance of companies like BPCL, Sun, Ola, Swiggy, Curefit, and Rupeek. In this blog, he explains how to improve personal finances, do growth hacking through digital marketing or other initiatives, and provides a sneak peek into the financial models of companies – especially startups.