A Layman’s Guide to Auto Insurance in India

Martin recently moved to India and bought his first car. But he doesn’t have enough knowledge about auto insurance in India. How to buy auto insurance? Which insurance company to buy car insurance from? What are the key things to know when buying car insurance? Martin is clueless. 

A quick online search for ‘best car insurance company in Mumbai’ throws hundreds of thousands of links, leaving him completely at sea. There are many people just like Martin who lack awareness about car insurance. Even though car insurance is mandatory in India, most auto insurance policyholders hardly care to understand their insurance policy in detail.

Here’s a layman’s guide to auto insurance in India. You’ll learn about:

•     What is auto insurance?
•     Types of auto insurance
•     What does auto insurance cover?
•     What auto insurance does not cover?
•     Why to buy auto insurance?
•     Auto insurance – key terms to know
•     Auto insurance – points to note
•     How to buy car insurance?
•     Auto insurance companies in India
•     How to choose a good auto insurance plan? 

What is auto insurance?

Just like other types of insurances, auto insurance provides financial protection against expenses arising due to any damage to the insured vehicle. Auto insurance is mandatory in India as per the Motor Vehicle Act. It includes the insurance of private and commercial four wheelers, two wheelers and heavy trucks. Auto insurance can have various components such as personal accident cover and third party legal liability cover. There are three types of auto insurance:

• Comprehensive insurance: This type of car insurance provides coverage towards damage caused to the car as well as third party liability coverage. 
• Third party liability insurance: This type of car insurance protects the policyholder against any third party legal liabilities that may arise due to accidents in which the insured vehicle is involved. 
• Pay as you drive auto insurance: this type of auto insurance allows the policyholder to pay premium as per the kilometers driven. This type of insurance is helpful to those who have more than one car and may not be using both the cars equally. 

Types of auto insurance

There are two key types of auto insurance:

Third-party auto insurance

Third-party auto insurance provides financial security towards expenses incurred due to damage to a third party – a person or property – due to an accident with the policyholder’s car. This type of insurance is mandatory. 

Comprehensive auto insurance

Synonymous to its name, comprehensive auto insurance provides wide coverage that pays towards expenses incurred by third party as well as for damages to own vehicle. Most insurance experts recommend vehicle owners to buy comprehensive auto insurance.

What does auto insurance cover?

Auto insurance provides basic and comprehensive coverage such as damage, loss, personal accident coverage and third party liability coverage. Apart from these, most auto insurance plans also provide add-on coverage such as zero depreciation cover, key replacement cover and more. Read about them here:

Loss or damage due to natural calamities

Auto insurance covers the cost of damage caused to the vehicle due to natural calamities such as flood, cyclone, earthquake, storm, landslide and lightning. 

Loss or damage due to man-made calamities

Auto insurance covers the cost of damage caused to the vehicle due to man-made calamities such as riot, terror attack, and burglary, among others.

Personal accident cover

Personal accident cover under auto insurance provides coverage towards injury, disablement or death. Some auto insurance plans also offer coverage for co passengers. 

Third party legal liability

Third party legal liability under auto insurance provides coverage towards damage to third party, which may be people or property. This cover is mandatory according to Indian law. 

No-claim bonus protection cover

With every claim-free year, the policyholder gets no-claim bonus, which can be availed in the form of discount on premium. A no-claim bonus protection cover allows one to retain the bonus even when a claim has been made. 

Engine protection cover

As the name suggests, engine protection cover provides coverage against damage and theft of engines. This add-on cover is most beneficial for owners of posh and expensive cars and vehicles. 

Zero depreciation cover

As a vehicle becomes old, it starts deprecating. Insurers provide claims on the depreciated value of vehicles. But by buying a zero depreciation cover, the policyholder can avail claim on the original value of the vehicle.

What auto insurance does not cover?

•     Auto insurance doesn’t cover the following:
•     The policyholder, if driving someone else’s car.
•     The insured car if being driven by someone else.
•     Damage caused to the insured vehicle if the policyholder is driving under the influence of alcohol. 
•     Deliberate damaged caused to the vehicle.
•     Wear and tear due to usage.

Why to buy auto insurance?

Besides the point that it is mandatory to buy auto insurance in India, there are many more obvious reasons to have the security of auto insurance. These are some reasons:

•  It pays for damages to the vehicle arising due to accidents and natural calamities; hence the vehicle owner does not have to worry about such unforeseen expenses.
• Auto insurance pays for third party liability expenses, such as those arising out of damages caused to a third party – person or property – due to accidents.
• Features such as zero depreciation and roadside assistance provide further benefits to the policyholder. 

Auto insurance – key terms to know

Insured Declared Value

The value of a vehicle’s insurance policy is determined based on the Insured Declared Value (IDV) of the vehicle. It is the maximum sum insured that the insurance company can pay. When one buys insurance for a new vehicle, its IDV is calculated as per the showroom price of the vehicle.

Vehicle insurance has to be renewed every year. Upon renewal in each year, its IDV decreases owing to the depreciated value of the vehicle. 

Here’s a simple formula that explains this:

Manufacturer’s Showroom Price – Depreciation = IDV

Third Party Cover

Third party cover provides financial protection against liabilities arising due to damage, death or injury caused to third party – people or property. If the victim files a suit against the policyholder, the insurer would pay the claims. Third party cover is mandatory according to Indian law.

Zero depreciation cover

Typically car insurance plans deduct depreciation amount. However, if the option of zero depreciation cover is chosen, insurers waive off depreciation.

Nil depreciation

At the time of a claim the insurer calculates the depreciation value due to which the claim amount may decrease. Nil depreciation in a policy ensures that the full amount of claim.

Auto insurance – key points to note

Quoting vehicle price: It is advisable not to quote a lesser price than the market value of the vehicle with the intension to pay lesser premium. The reason for this is simple, if the price quoted is less; the claim for damages would be calculated accordingly and would be less.

Renewal of auto insurance policy: Always renew auto insurance on time so as to avoid paying heavy penalty. Renewing the policy ensures the discounts allowed due to no-claim. 

Zero depreciation cover: Typically car insurance plans deduct depreciation amount. However, if the option of zero depreciation cover is chosen, insurers waive off depreciation. Though opting for zero depreciation cover may increase the premium, it is advisable to select this option. This cover, however, is applicable only for the first few years of claim. 

No claim bonus: Every claim free year earns a discount, which decreases the premium amount. It is better to avoid making claims for small damages to the vehicle so as to avail of no claim bonus.

Third Party Cover: Mandatory according to the Indian law, third party cover provides protection to the insurer against expenses arising due to damage, injury or death to any third party – people or property. If the third party victim files a suit, the insurer would pay. 

How to buy car insurance 

Typically, the car dealer would recommend insurance companies and plans to the customer at the time of buying a car. However, one can also buy or renew car insurance online in a few easy steps. All insurance companies have an online application feature for car insurance, where one is required to share the vehicle details, such as model and vehicle registration number. Documents required: make and model of the vehicle, registration number, age of car and the city of registration. 

Auto insurance plans in India

HDFC Ergo Car Insurance offers different types of car insurance plans:

• 1 year comprehensive plan, which provides complete protection, including third-party liability coverage, all kinds of damages to the car and personal accident coverage for 1 year.
•  Standalone Own Damage car insurance, which provides coverage towards damages incurred due to natural and man made calamities such as flood, earthquake, riot and more.
• Long-Term Comprehensive car insurance provides complete including third-party liability coverage, all kinds of damages to the car and personal accident coverage for 3 years.

Features:

•     6800 + network garages where policyholders can avail cashless facilities
•     Up to 70% discounts on premium of car insurance
•     Provides no-claim bonus

Bajaj Allianz Car Insurance offers comprehensive car insurance plans with add-on features.    

•  Basic Plan: with a low premium cost, the basic plan offers limited coverage of basic third party liability and personal accident coverage. 
• Standard Plan: this car insurance plan offers an average premium cost and coverage for own damage, third party liability and personal accident coverage.
• Comprehensive Plan: this plan offers enhanced premium cost and coverage for own damage, third party liability and personal accident coverage.

Tata AIG Car Insurance offers auto insurance plans for private and commercial vehicles.

•  Auto Secure-Private Car Package Policy: provides comprehensive coverage against damage due to natural calamities and man made damages, third party liability, personal accident coverage of up to Rs 15 lakh and 13 add-on covers. 
•  Auto Secure-Commercial Car Package Policy: this insurance plan provides coverage against liabilities as well as loss or damage due to incidents such as theft. It covers all kinds of commercial vehicles and offers 6 add-on features.

How to choose a good auto insurance plan?

• Look for flexibility: The best insurance companies would go the extra mile to provide a car insurance plan that caters to individual clients. A one-size-fits-all approach may not work in the case of car insurance.
• Look for affordability: Look for insurance plans that offer wider coverage. Comprehensive car insurance plans may be more expensive but they may be worth it for covering huge damages in worst accidents.
• Look for good customer service: 24/7 customer service is key as emergencies related to cars can arise at any point. Look for companies that have representatives that explain details carefully and answer all your queries.

Are you ready to get started with buying an insurance plan for your car? If you are, well done! Auto insurance is definitely something you must not ignore. There are a lot of intricacies that should be considered.