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Beginners Guide to Understand Car Insurance Basics (2020)

Apr 9, 2020 9:42 AM 6 min read
Editorial

We will try to shed some light on basics of car insurance through a beginner's guide - what does car insurance cover in India, types of car insurance explained, difference between comprehensive vs third party insurance and what are the benefits of add on covers in vehicle insurance?

 

A car is perhaps one of the most expensive things you would spend on during your lifetime, aside from a house. It is a prized possession for many of us. We spend days and months researching and saving for the "dream" vehicle. However, what we often miss in the dreaming, researching and saving process is to research and account for an appropriate insurance policy. 

 

As per data by the Ministry of Road Transport & Highways, in 2018, India reported around 4,67,044 fatalities due to road accidents. Moreover, every year, the country invests about 3-5% of its GDP in road accidents. It therefore becomes rather imperative for us as responsible citizens to get a robust car insurance cover. 

 

In addition to this, The Motor Vehicle Act of 1988 makes it mandatory for all vehicles to be covered under an appropriate insurance policy before they can hit the road.

 

Moreover, considering the high costs involved in the repair and maintenance of motor vehicles, it becomes a rather advantageous move to get your car insured before you take it out for a spin.

 

Let us begin this guide from the basics.

 

 

What is a Car Insurance Policy?

What Does it Do? 

Car insurance is a type of “General” insurance, which is a contract between an insurer and a policyholder that insures everything apart from life, offering financial compensation on any loss other than death. (pro tip: you can view our explainer video on the business model of an insurance company)   

 

How Does it Work?

General insurance provides protection against unforeseeable contingencies like damage and loss of the asset, compensating the policyholder for financial loss due to liabilities related to your house, health, travel, and of course car. 

 

Insure your Car before taking it out for a spin
India reported around 4,67,044 fatalities due to road accidents in 2018. Each year the country invests about 3-5% of its GDP in road accidents. 

 

Types of Car Insurance in India

There are two types of car insurance products - Comprehensive Insurance and Third Party Insurance.

 

Comprehensive Car Insurance

This type of car insurance covers all kinds of damages and liabilities caused to the policyholder or a third party. It includes damages caused by accidents, sabotage, theft, fire, natural calamities, etc.

 

Third Party Car Insurance

This category of car insurance compensates for the damages caused to another individual, their vehicle or a third-party property. A third party legal liability policy will cover the cost of any legal liabilities that may arise if your vehicle has been involved in an accident where a third person has been injured or if any third party’s property has been damaged.

It is rather interesting to note here that the minimum requirement in terms of insurance under The Motor Vehicle Act of 1988 is to at least have a third party legal liability insurance before it can be driven on a public road.

 

Comprehensive vs Third Party Insurance

Below is a look at some vital differences between a Third Party Insurance and a Comprehensive Car Insurance:

 

Comprehensive vs Third Party Insurance
Source: Digit

 

Car Insurance Add Ons

Car Insurance policies also come with certain additional benefits or add-ons, which can be added to your policy at the cost of paying an extra/higher premium.

 

Zero Depreciation Cover

Ever wondered what zero depreciation cover is? With a zero depreciation add-on, when a policyholder files for a claim due to damage/loss, the insurer covers the entire cost without accounting for the vehicle’s depreciation. This add-on feature is highly recommended considering it minimises the possibility of any out-of-pocket expense from the owner. 

 

Engine Protection is a Must
Engine Protection is a Must

 

Engine Protector

This add-on covers any damage to the engine, be it from leakage, water damage, physical damage, or hydrostatic lock (i.e. When you attempt to start a “wet” engine).

 

Such damages are not covered under regular car insurance policies and provide critical relief considering engine replacements and repairs can be quite expensive! Of course like all things expensive, some conditions apply

 

Vehicle Replacement Advantage

If your car gets stolen or is damaged due to a bad accident or a natural calamity, this add-on helps you replace your car with a new equivalent or near equivalent car of similar make, model, features, specifications and colour.

 

In cases where a new equivalent or near equivalent vehicle is not available, the policy-holder will be paid a cash benefit equal to 5% of Insured Declared Value (IDV) in addition to the actual difference between the original ex- showroom price of the damaged Insured Vehicle and the IDV.

 

Accident Shield

In case your car meets with an accident and you are not the sole individual in that car, the insurer will compensate you and the other occupants of your car in case of death and/or permanent total disability arising out of an accident while travelling in your car.

 

24x7 Spot Assistance can be Helpful in Emergencies
24x7 Spot Assistance can be Helpful in Emergencies

 

24x7 Spot Assistance

This add-on cover provides benefits such as towing facility, legal advice, medical coordination, accommodation benefits, taxi benefits etc in case of an emergency or breakdown.

 

No Claim Bonus (NCB)

A policy holder is entitled to a NCB discount on the premium payment for the following year if he/she has not made a claim the previous year. 

 

Cashless Claims

A cashless claim allows the policyholder to get the vehicle repaired without paying cash at a network garage. This is possible owing to the tie-ups between the garages and the insurance providers. Any claim made through an insurance provider’s network garage will allow you to get your claim processed in a smooth and simple manner, as the insurance company will directly deal with the garage and pay for the repairs minus any items not covered under the policy.

 

What Does Car Insurance Not Cover?

 

  • Here’s a quick look at things your car insurance policy may not cover:
  • Damage caused when the policy is not active
  • When someone  who has explicitly been mentioned in the “excluded drivers” list in the policy is driving the car
  • Damage caused when driving without a license
  • Damage caused when driving under the influence of alcohol or drugs
  • Damage due to wars, mutiny or nuclear risks (yes!)
  • Mechanical and electrical breakdown
  • Normal wear and tear and general ageing of the vehicle
  • Damage to tyres and tubes, unless damaged during an accident
  • Loss of personal belongings kept in the car

 (pro tip: look out for the “exclusions” section in any policy document)

 

Watch out for Part Two where we discuss how a car insurance premium is calculated and how to claim car insurance.

 

FIN.

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