With the increasing number of vehicles on the road and the possibility of accidents, having car insurance protects you from unexpected financial losses. Though car insurance might seem daunting to new car owners, but it carries a lot of benefits.
As a responsible car owner, one should have car insurance to ensure the safety of own vehicle and third parties as well. Considering the safety of the people on the road, IRDAI ( Insurance Regulatory and Development Authority of India) makes it compulsory for all the registered vehicles in the country to have third-party insurance.
This guide will take you through everything you need to know about car insurance, right from the very beginning, what it is, types, why it is important and other crucial aspects relating to it.
What is car insurance and why is it mandatory?
Car insurance is basically a policy taken by the car owner to cover monetary losses in the event of unforeseen situations resulting in damage to the vehicle by accidents, theft, fire, damage from natural calamities, etc.
Car insurance is a contract between the vehicle owner and the insurance company (insurer), wherein the insurer promises to cope with the monetary losses in case of any unpredictable situation/event causing damage to the vehicle of the policyholder (vehicle owner/insured). The contract says that the insured is liable to pay a regular amount of money called premiums to the insurer, who, in return, covers the financial loss caused to the vehicle of insured.
Why is it mandatory?
As per IRDAI, all registered vehicles in India must have third-party insurance. The main objective behind making car insurance mandatory for all registered vehicles is to ensure that the liabilities arising out of the unfortunate event against the loss of the third party are met smoothly and at its earliest. Moreover, it also protects the insured from the financial loss of his vehicle.
Further, not having car insurance might result in penalties or even legal actions.
Why is car insurance important?
People take utmost care while driving a car, but this doesn’t eliminate the chances of accidents or mishaps. One can never predict the unfortunate events.
Here are some of the major reasons why having car insurance is important:
Mandated by law: Having car insurance is mandatory for all registered vehicles across the country. Not having insurance results in the levying of penalties.
Liability cover: Car insurance provides a cover against liabilities towards the third-party. The policy covers the loss of life or vehicle damage to the third party.
Monetary protection: A vehicle insurance policy covers all the financial losses that occur as a result of unforeseen events. It covers the damage to the vehicle, loss due to theft, natural disaster and fire (under a comprehensive car policy).
Peace of mind: Another important reason for having car insurance is that it provides peace of mind to the insured, as they are covered against financial losses.
Types of car insurance
Now that you know what car insurance is and why having it is important, it’s time to understand the types of car insurance.
Several types of car insurance are offered by insurance providers to meet the diverse needs of vehicle owners.
Below are some general types of car insurance available in India:
Third-party only policy: As the name suggests, the third-party only policy covers damage or loss caused by you to the third party. To have this insurance is mandatory as per the Motor Vehicles Act, and it covers the loss of life, injury and damage to the vehicle or property of the third party.
Comprehensive policy: The comprehensive insurance policy offers wider/complete coverage. In addition to the losses covered under the ‘third-party only policy’, it also covers the damage caused to the vehicle of the insured not only by accidents, but through natural calamities, theft, fire, etc. In brief, this policy covers the third-party liabilities and damage to the owner's vehicle as well. Moreover, it also provides the insured with the option of the add-on options.
Standalone own damage policy: This policy is especially for those who want some extra protection for their vehicle. This policy only covers the damage caused to the vehicle of insured. The damages covered in this policy include car scratches, repair after an accident or natural calamity, dents, or theft.
Collision policy: This policy generally covers the damage caused to the vehicle due to road accidents, which means it doesn’t cover the damage resulting from the wear and tear of the vehicle. The value of the policy is determined on the basis of the age of the car.
Factors that affect your premium
A car insurance policy is a binding contract between the insurer and the insured, wherein the insurer promises to compensate the financial damage caused to the insured as covered under the chosen policy. To get the financial losses covered, the insured is liable to pay a certain amount of money called ‘Premium’, for the tenure selected by him.
Premium, in simple words, is a certain amount payable by the vehicle owner (insured) in return for which the financial assistance is provided by the insurance company (insurer). For a third-party insurance policy, the premiums are defined by the Insurance Regulatory and Development Authority of India (IRDAI) on the basis of the cubic capacity of the vehicle’s engine.
When it comes to comprehensive policy, the insurance premium is decided considering the following factors:
Car insurance cover: The foremost important factor impacting the premium amount is the car insurance cover. The higher the policy amount, the more will be the premium payable by the owner. Moreover, the add-on (if any) also impacts the amount payable.
Insured Declared Value (IDV): This is the market value of the car. In case of a complete loss of a vehicle, this amount will be paid by the insurer. The higher the IDV, the more will be the premium and likewise.
Age of the vehicle: The age of the vehicle directly impacts the premium amount of the car insurance. The older the vehicle, the less the premium and vice versa.
Claim history: This plays a vital role in the renewal of the car insurance policy. Zero claims result in ‘No Claim Bonus’, which means the premium is offered at a discounted rate by the insurer.
Gender: The car insurance might be affected by the gender of the insured. Men are likely to pay more premiums as compared to women and older people. The reason behind it is the higher possibility of accidents and their driving behaviour.
- Location: Another factor impacting the car insurance premium is the location. Car owners in the high-accident-prone and theft areas pay a high premium.
Key terms you should know
There are some technical terms used in car insurance that you should definitely know, and they are:
IDV: Insured Declared Value or IDV is the market value of the vehicle.
NCB: No Claim Bonus or NCB is a discount provided by the insurer to the insured on the premium amount for having a claim-free year. Ranging from 20%-50%, NCB is provided at the time of policy renewal.
Deductibles: Deductibles refer to the amount the insured (vehicle owner) pays out of his pocket before the insurance company covers the remaining. There are generally two types of insurance: compulsory (as fixed by IRDAI) and voluntary (where one pays a higher amount to get lower premiums).
Zero depreciation cover: Also known as a ‘bumper-to-bumper’ insurance policy. Under this, the depreciating value of items (spare parts) is not deducted, resulting, the insured getting complete coverage for repair and replacement in any event where the vehicle gets damaged or stolen.
Popular add-ons in car insurance
The add-ons are the optional covers that the car owner can purchase along with their insurance policy. The add-ons provide extra financial protections that aren’t covered in the standard plan.
With add-ons, insured can tailor their policy according to their needs, get added financial coverage and cut down the out-of-pocket expenses.
Below are some of the widely preferred add-ons:
Roadside Assistance: This add-on benefits the insured person with emergency services in case of a car breakdown. To avail the benefit of this add-on, the insured person needs to pay an additional amount along with the premium. It offers the following benefits: coverage for battery failure, minor repair, flat tyre, provision of spare key, fuel assistance and towing facility.
Engine Protection: This add-on provides financial protection against engine damage. The engine is one of the most expensive parts of a car, and standard policies may not include this benefit. This add-on is highly recommended in the flood-prone areas.
Personal Accident Cover: This add-on cover compensates the financial loss or damage to the policyholder, including injuries, disabilities (total, partial, or temporary), and death, providing financial security to the insured.
Consumables Cover: This add-on covers expenses of consumables such as oil and lubricants, nuts and bolts, etc., which aren’t usually covered in the standard policy.
How to buy car insurance online?
Park+ offers a convenient and transparent way for those looking to get car insurance. Car owners can look for different types of insurance provided by several insurance providers and compare them that too at one place.
If you are also planning to get vehicle insurance, perform the following simple actions:
1: Open the Park+ app on your mobile.
2: Go to the ‘Insurance’ section and click on it.
3: Enter the required car details, such as ‘Vehicle Number’.
4: Check out all the insurance details, such as:
- Insurance providers
- Types of insurance
- Policy features
- Benefits
- Premium
- Add-on covers5: Select an insurance policy that best suits your needs after comparing the policies.
6: Complete the KYC for verification.
7: Choose a suitable payment method from the available options.
8: Make the payment and get the digital copy of the insurance policy.
What are the steps involved in the Car Insurance Claim process?
Encountered an unforeseen event?
Don’t panic! Perform a couple of the simple actions and file a car insurance claim. Report an FIR (if required).
- Inform the insurance provider at the earliest.
- Provide the evidence (photo/video) along with all the required documents.
- A damage assessment will then be arranged by the insurance company.
- The vehicle will then be sent for repairs at the authorised garage.
- The insurer will process the claim amount once the repairs are done.
Documents required for getting the car insurance
Documents play a vital role in getting car insurance. Failing to present the required documents might result in delay or rejection of the car insurance policy.
To ensure a smooth and quick car insurance process, keep the following documents handy:
- Identity proof (passport, Aadhar card, PAN, or government-issued photo ID)
- Address proof
- A recent passport-sized photograph
- Driving License (D.L.)
- Vehicle Registration Certificate (R.C.)
- PUCC
- Copy of old insurance policy (in case of renewals)
Third-Party Vs Comprehensive Car Insurance
Basically, there are two widely known car insurance policies: Third-party car insurance and comprehensive car insurance.
Insurers, at times, get confused between the two, so here we have provided a clear comparison considering the major grounds:
| Basis of comparison | Third-party policy | Comprehensive policy |
|---|---|---|
| Mandatory | Mandatory as per IRDAI | Not mandatory |
| Parties covered | Third-party injuries Third-party deaths Third-party’s property damage | Third-party injuries Third-party deaths Third-party’s property damage Theft Fire Natural Calamities Damage to the car of insured in the event of an accident |
| Premium | Decided by IRDAI, based on the cubic capacity of the vehicle’s engine. | Determined by several factors like age of car, gender, location, IDV, insurance cover, add-ons etc. |
| Mode of claims | No cashless claims | Provides cashless claims |
| Coverage | Limited coverage | Wider coverage |
| Third-party or property damage | Covers third-party/property damage | Covers third-party/property damage |
| Option of add-ons | Doesn’t provide the option to choose add-ons | Provide the option to choose add-ons |
Common mistakes to avoid when buying car insurance
When buying car insurance, there are some mistakes that we make unknowingly, which might leave an adverse impact in the long run.
The general mistakes to avoid when getting car insurance are:
- Not comparing the insurance policies.
- Avoiding the beneficial add-ons or adding the non-beneficial ones.
- Agreeing on low coverage insurance premiums.
- Hiding information or providing incomplete/incorrect details.
- Accepting the policy without reading the policy conditions.
- Not renewing the car insurance policy on time (in case of an existing policy).
Conclusion
Car insurance is not only important because it is mandatory by law, but also because it provides financial protection against unforeseen circumstances, acting as a safety net. Depending on the insurance policy you opt for, the coverage varies. Third-party insurance is mandatory for all types of vehicles, irrespective of their size. Thus, when buying a car, consider essential add-ons and don’t miss comparing the insurance policies. Enjoy stress-free driving with the right car insurance.