People spend a whole lot of time in doing research on the latest car models, designs, safety features, colours, and other things before purchasing a car but seem to take car insurance for granted. We feel that with skilled driving techniques we are invincible and would not require any type of car insurance but forget to take into account that accident could occur due a myriad of reasons and most of them are not our faults. Hence, while buying a new or used car it is mandatory to invest that extra amount of money and get a car insurance.
As per Ministry of State for Road Transport and Highway data, in October 2020 India accounted for 12.5% of worldwide road accidents. This shows that there is a road accident in every four minutes. Hence, to remain prepared and save oneself from any mishap, it is essential that you get a motor insurance for extensive car cover.
Table of Contents
What is Car Insurance?
Car insurance or motor insurance is a contract between the insurance company and the car owner to safeguard the latter from financial losses in the instance of any unexpected mishap. It primarily delivers financial cover against unexpected losses related to the insured vehicle. The coverage includes:
Medical: Insurance covers the expense of injury treatment, rehabilitation, and occasionally funeral expense and wage loss.
Liability: Legal responsibility associated with a third party for property damage or body injury.
Property: Theft or damage to the vehicle.
The concept of Motor Insurance
Car insurance operates on the policy “use it or lose it”. Under this policy, car owners are obliged to pay a certain amount of annual premium to maintain the car insurance. In the instance of lucky owners who do not face any major accident or mishap related to the vehicle and decides against claiming insurance, there is a loss in the premium amount. However, the owners experience a benefit by not claiming this amount as they would get a No Claim Bonus, a substantial sum, for the subsequent policy renewal. The No Claim Bonus starts at 20% of the premium in the first year and extends to 50% in the sixth. Hence, it is advisable to abstain from claiming minor damages to receive this substantial discount.
The Value of Insurance Policy
The value of the insurance policy is dependent on the IDV (Insured Declared Value) of the vehicle. The IDV is the highest limit on the insurance amount payable by the insurance company. It is equivalent to the vehicle’s existing market value. Hence, when a person purchases insurance for a new vehicle, the IDV is calculated on the basis of the showroom’s listed price. It must be kept in mind that a vehicle’s IDV changes over the years to match the depreciation in the car value. So, when your car insurance policy gets renewed after a year, the IDV would have decreased to reflect the depreciation of a used car.
IDV = (Manufacturers listing price – Depreciation)
(Accessories not included in the listed price – Depreciation)
Note: Do not quote a smaller figure than the car’s existing market price. Even if you save up on the premium amount, you would lose the claim money for damages incurred. It will be a greater loss in comparison to the initial small investment. Also, keep in mind that it is mandatory to renew the policy within the predestined time prescribed by the insurance company otherwise you might have to end up paying a large penalty amount. The renewal period of car insurance is generally 90 days.
Benefits of Availing of Car Insurance
- Receive a cover for car damage occurring due to natural calamity, accident, collision, death, or any other reasons. In the absence of car insurance, the same would have been paid by the car owner.
- The insurance provides hospitalization coverage in the case of a car accident.
- The legal or financial liability is reduced in the instance of third-party damage or liability.
- Car owners can take the advantage of rider benefits such as a vast number of garages, personal accident cover, the personal assistant rider benefit, car accessory cover, daily allowance benefits, zero depreciation cover, consumable cover, engine protection cover, no claim bonus protection cover, key protection cover, and roadside assistance to further reduce the expenses.
Documents Required to Purchase Car Insurance
- Details of Owner- name, gender, marital status, yearly earning, address, date of birth
- Driving license
- Vehicle registration
- Voided check
- Current declaration form
- V5C or logbook to confirm you are the original owner of the car
What is covered in Car Insurance?
1. Loss or Damage Induced by Natural Calamities:
In such instances, the damage or loss occurred owing to natural reasons that lay outside the control of the car owners. Examples include landslide, cyclone, hurricane, typhoon, flood, earthquake, and lightning.
2. Loss or Damage Induced by Man-Made Calamities:
In such instances, the damage or loss occurred owing to man-made catastrophes. Examples include burglary, terrorist activity, strike, theft, and damages incurred in the course of transit via water, rail, or road.
3. Personal Accident Cover:
It provides security to the car owner’s family in the instance of an accidental death or accident-induced permanent disability. The car insurance provides a life cover of up to 2 lakhs INR for any injury sustained by the driver while travelling, mounting, or dismounting from the car. There are also rider options to cover the life of co-passengers in the instance of an accidental death or injury.
4. Third Party Legal Liability:
It is a lawful coverage that safeguards against the legal liability of accidental damages that result in a third party’s demise or permanent disability. The cover includes damage sustained to any surrounding property.
What is not covered in Car Insurance?
While the car insurance tries to cover you from numerous unforeseen mishaps, there are certain things that it does no cover. They include:
- Death or injury when driving another person’s car.
- Death or injury of a person driving your car when s/he is not covered under the insurance policy.
- Car damage that occurred because the driver was under the influence of a drug or alcohol.
- Car damage by a driver who did not had the authority or a valid licence for driving.
- Deliberate vehicle damage or loss.
- Damage or loss owing to nuclear risk, mutiny, or war.
- Breakdown of electronic and mechanical parts.
- Vehicle’s age related wear and tear.
- Use of car in any other way than proclaimed for use
Premium Payment
The premium for car insurance is decided on numerous factors such as
- Age of driver
- Profession of driver
- Vehicle’s make
- Vehicle’s existing monetary value
- Driving history
- Geographic location
Availing Car Insurance
Many car insurance companies provide both online and offline facilities to purchase/ renew a car insurance. A dominant part of these insurers provide the facility of cashless garage for vehicle repair. It means the car owner would not have to spend any amount of money to get the car repaired as long as it is serviced at the designated garage. However, if the car needs to be repaired at a garage that is not included in the provided network, then the owner would get the reimbursement on the expense.
Tax Benefits
Car insurance provides the facility to avail tax benefits on the premium amount. Nevertheless, this facility is available for commercial cars only. There is no tax benefits for personal cars. To avail tax benefits, the car owner must provide the expense proof towards the insurance premium on car insurance.
In the instance where a car is used for both personal and business purposes, the deduction on income tax for car insurance payment will be done in proportion to the duration used for business purpose. For example, if a person uses his car for two hours of personal use and nine hour of professional use, then he can claim the deduction only for nine hours.
Types of Indian Car Insurance Policies
India has the facility for three types of car insurance policies- Comprehensive Car Insurance, Third Party Car Insurance, and Pay As You Drive Insurance
- Comprehensive Car Insurance: This type of car insurance provides total cover to any damage to your car as well as third party liability cover. There are several benefits for comprehensive car insurance such as extensive coverage and damage cover in the instance of theft, collision, accident, etc. This car insurance could further be extended by choosing several ad-on like medical expense, zero-depreciation cover, engine protector, and accessory cover. Due to its end-to-end coverage, policy holders are faced with limited burdens.
- Third Party Car Insurance: This type of car insurance protects the owner from legal liabilities caused by the vehicle’s involvement in any accident. The car owners would get compensation on injury, disability, death, or third-party related property damage.
- Pay as you Drive Insurance: This type of car insurance is alternately termed as usage-based car insurance. Here the owner can pay the insurance payment based on the kilometres of motor driven. This category of insurance is meant to decrease the insurance load of people with multiple motor cars where not all vehicles are constantly in use. Under this policy, the owner gets a comprehensive coverage on self-damage and third party liability for a one-year plan on a pilot basis. Here, the policy buyer would have to provide an estimation on the expected distance he/she plans to cover within a 12-month period and the policy is delivered based on this information. Many Indian insurance companies such as Bajaj Allianz and Bharti AXA provide Pay As You Drive insurance under the IRDA directive. In general, such insurance comes under three slabs- 2,500 km, 5000 km, and 7500 km.
Car Insurance Claim
To claim a car insurance keep the following information handy:
- Accident’s date and time
- Driver’s name, contact details, and driving license details
- Contact details of insured
- Policy number of your vehicle
- Loss estimation
- Incident’s description in brief
- Name of location where the incident occurred
Initiate the claim through the customer help desk and follow the steps stated in the call. Once the claim has been lodged, the customer help desk would provide you with a claim reference number. The claim would be looked into by an assigned surveyor. The confirmation message and the details of the assigned assessor would be sent to your registered mobile number. The assessor would meet you at your convenient time and proceed with the survey. Upon request, you would have to submit certain documents like type of document and the severity of damage. The surveyor would submit the report based on the assessment and help you in settlement claim.
Documents Needed for Can Insurance Claim Filing
- Police FIR’s copy (in the instance of highway accident, damage/injury to third party, or stolen vehicle)
- Policyholder’s signed claim form
- Car Registration Certificate
- Driving license copy
- Original repair bill
- In the case of commercial vehicles a fitness certificate is essential
- Endorsed insurance documents
The claim would be settled within a week of submitting the required insurance claim documents.
I’m Shiv Kumar, a graduate with a passion for finance, marketing, and technology. My journey into finance started with a desire to understand money management and investing.
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