Layman's Guide to Understanding Car Insurance
Layman's Guide to Understanding Car Insurance
Published on Octomber 4, 2019. EST READ TIME: 3 minutes
A car for most car owners is a prized possession. It not just gives you the freedom to go anywhere, anytime you want, but also makes you confident and independent. While there are various rules and regulations that you need to follow as a car driver, as a car owner your primary responsibility is to insure your car, and preferably yourself as well, against common risks. As per the Motor Vehicle Act, 1988, it is mandated for every motorised vehicle to have a minimum of third-party.
Car insurance can be helpful as it provides financial assistance to vehicle owners in case of accidental damage, theft, or injuries. While most people have an insurance policy, there are terms and jargon that can make some aspects of car insurance seem more complicated than they really are. This not only makes it difficult for a layman to buy the right coverage for a vehicle but can also create misunderstands and heartburn at the time of raising a claim.
Layman's Guide to Understanding Car Insurance Policy
Car insurance, also known as auto/ motor insurance, is a type of insurance that provides financial coverage in case your insured car gets damaged or lost. In return, the policyholder/car owner has to pay a sum of car insurance premiums.
Since a car is a hefty and luxury item, related expenses can be high as well. When on the road, your vehicle may suffer damage or loss and the high repair cost can leave you vulnerable. At such a time, if you have car insurance, you need not get anxious, rather you just inform your car insurance company. Your insurer will bear the admissible repair costs.
Types of Car Insurance
Different car owners have different needs when it comes to car insurance. Thankfully, there is more than one type of car insurance to suit the needs of the maximum number of car owners. These are:
• Third party car insurance
Third-party liability covers any damage caused by your car to a third-party vehicle or property; and injuries to a third-party person. Third party car insurance is the minimum insurance coverage you need for your car as per the rules of the Motor Vehicle Act, 1988. If you do not have a third-party cover, you will not only have to pay a penalty but may also suffer legal actions. Third-party car insurance is best suitable for car owners who drive their vehicle less frequently or the vehicle is too old.
• Comprehensive car insurance
Comprehensive car insurance, as the name suggests, covers third party liability as well as own damage to the car. It offers cover against theft, damage due to accidents, fire, explosions, or natural calamities, and third-party liability. The premium for comprehensive car insurance is higher than that of a third-party cover due to wider coverage and benefits offered. If you have a new car or you drive it out frequently, a comprehensive cover will ensure maximum benefit.
Exclusions in Car Insurance Policy
Every car insurance policy comes with some things excluded from the plan. However, you can include a few of them in your plan by buying add-on covers. For instance, depreciation and electrical or mechanical breakdowns are not covered in regular car insurance but can be covered by way of add-on covers.
Damage and injuries caused due to illegal driving are not covered by car insurance. Further, damages/. Accidents that are caused when driving without a valid license or under the influence of alcohol and other banned substances are also not covered.
Add-On Cover Options
Comprehensive cover may not be sufficient for every car owner. You may want to protect your vehicle even more. For this reason, insurance companies offer add-on covers. You can buy one or more add-on covers along with your comprehensive car insurance. You will need to pay an additional premium for each add-on cover separately.
Take a look at the different types of add-on covers you can buy for your car:
• Zero depreciation
A car suffers normal wear and tear over the years. This is called the depreciation of the vehicle. At the time of calculating the claim amount, the depreciation cost is deducted from the final claim amount. However, with a zero depreciation cover, the insurer will pay your claim amount without taking the vehicle's depreciation into account.
• Emergency assistance
When you are en route to some place and in the middle of the road your vehicle fails, rather than hitting the panic button, you can claim instant help with an emergency assistance add on cover. The insurer will cover your vehicle in case you need minor roadside repairs, lost key assistance, tyre changes, battery jumpstarts, towing etc.
• No claim bonus (NCB) protection
Every claim-free year gives vehicle owners the benefits of lower premiums as a bonus from the insurer, which can go up to 50%. However, making a claim can bring the NCB to zero. But you can protect it by buying an add-on cover to protect your NCB, where you can make up to 3 claims without affecting the NCB.
• Engine and gearbox protection
Generally, the cost of repairing the engine and gearbox is not added to the basic plan of car insurance. Hence, having an engine and gearbox protection cover can be quite helpful. This add-on cover is to protect your vehicle's engine or gearbox due to waterlogging or flooding.
• Return to invoice
If the car sustains total damage or is stolen, you will only get the claim amount as per the INSURED DECLARED VALUE (IDV), which is equivalent to the current market value of the same car make and model. But with the Return to Invoice cover for car, the compensation you receive will equal the car's original invoice value.
Why buy car insurance?
You may wonder why it is highly recommended and even mandated by the government to purchase car insurance. Well, car insurance is essential since sometimes, the repair costs can put a dent in your savings. A major accident can cause hefty repairing services and paying for it from your pocket may not be a wise decision. Apart from this, certain services like roadside assistance are only possible with comprehensive car insurance. Not just these, a car insurance policy also bears the cost of third-party damages/injuries. Considering all these factors, you must have car insurance. Depending on your personal preferences and the requirements of your car, you can choose a suitable plan.
Frequently asked Questions
1. Do I need car insurance for my old car?
Yes. Third-party insurance is mandatory for all motor vehicles in India under the Motors Vehicle Act, of 1988.
2. What are the factors that influence my car insurance premium?
The factors affecting car insurance premiums are:
• Age of your car
• Car's location
• The plan purchased
• Make and model of the car
• Accessories installed
• Add-ons purchased
• IDV (Insured Declared Value) of your car
3. What is the meaning of a No Claim Bonus?
No claim bonus is a bonus offered to the policyholder at the time of policy renewal. It is rewarded when a policyholder makes no car insurance claim in a policy year. Depending on the number of claim-free years, NCB helps you to get up to a 50% discount on the renewal charges of your insurance policy.
4. Is it mandatory to buy comprehensive car insurance?
Under Motors Act, of 1988, having a minimum of third-party car insurance is mandatory in India, however, having comprehensive insurance for your vehicle is optional. At the same time, it should be noted that third-party coverage only covers third-party liability and not own damages.
5. How many times can I make an insurance claim?
In a policy year, you may raise as many claims as you want. There is no cap on this limit. But, keep in mind that too many claims put you in a bad light, and you have to pay an increased premium for the upcoming policy year.
Conclusion
Now that you understand the different aspects of car insurance, choosing one should be easy. Just remember to list out your car insurance needs, analyse the different types of insurance covers available, and read the terms and conditions carefully before making a choice.
Disclaimer : The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales
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