Motor Insurance

Motor insurance is a means of protecting the vehicle against damages and liabilities that the vehicle owner may incur during any unforeseen accident, theft or natural disasters which affect the vehicle. Third-party insurance is a statutory requirement as per the Indian law under the Motor vehicles Act, 1988. As per the law, any motor vehicle driven in public places without insurance is a punishable offence.

Availability of motor insurance has become extremely easy and convenient. Many insurers offer motor insurance online. It is, however, important to understand the nuances of motor insurance before availing one.

What is Motor Insurance?

Motor insurance is an agreement between the insurer and vehicle owner wherein, the insurer agrees to pay a predetermined amount against any financial loss incurred due to the occurrence of an unforeseen incident. This amount of insurance is paid in lieu of a premium paid by the vehicle owner to the insurance company.

Types of motor insurance cover available in India:

The different types of the motor insurance policy are –

• Third-party motor insurance
• Own damage motor insurance
• Comprehensive motor insurance
• Pay as you drive insurance policy

1. Third-Party Motor Insurance

Third-party insurance is mandatory under the Motor Vehicle Act, 1988 in India. It is a punishable offence if any vehicle without third party insurance is used in public places. This type of insurance does not cover any damage occurring to the owner’s vehicle in the event of the accident. The other types of risks in the form of theft, natural disasters, terrorist acts, spiteful acts are also not covered. The third-party motor insurance cover will include legal liability against damage to a third party vehicle, injury of the individual in the third party vehicle, death of the individual in the third party vehicle, any other form of damage caused while the insured vehicle was being driven in any public place.

2. Own Damage Motor Insurance

It is also called standalone own damage motor insurance. A vehicle owner can avail insurance cover for own vehicle, this motor insurance will cover any damage occurring for one’s vehicle arising from natural or man-made disasters, unforeseen accident, theft etc., Own damage motor insurance is not mandated by law, however, having own damage motor insurance will provide peace of mind for the vehicle owner. It may be availed when the vehicle owner already has third party insurance and intends to avail own damage motor insurance cover. This type of policy does not cover – depreciation, electrical or mechanical breakdown and illegal driving.

3. Comprehensive Motor Insurance

These plans offer cover to one’s vehicle, third party liability coverage. They cover the owner’s vehicle against multiple risks including but not limited to external accidents, spiteful acts, terrorist acts, natural disasters, theft etc., This type of insurance also covers personal accident cover, injuries or death of the driver and/or passengers in the vehicle while the accident occurs. Some of the insurers also offer doorstep pick-up and drop, customized insured declared value.

A comprehensive motor insurance cover premium will have a higher premium as against a third party motor insurance due to the scope of coverage.

4. Pay As You Drive Motor Insurance

This is a new type of motor insurance cover being offered by motor insurance companies. They are ideal for individuals who have multiple cars or for people who do not drive their cars often. This is a variant of the comprehensive car insurance which covers own damage and third-party liability. As part of the sandbox project, they are extended on a trial basis for 1 year. The premium is charged based on the car’s usage or kilometres it covers.

What are the exceptions to motor insurance cover?

1. Motor insurance cover does not cover:
2. Illegal driving, if the driver does not have a valid license, then the claims would not be issued.
3. In case of theft or vandalizing of the vehicle, loss of any personal belongings in the car will not be covered.
4. If the vehicle has been used for commercial purposes, then the insurer will not honour the claims if the declaration was not already made.
5. Damages incurred when the driver was under the influence of alcohol or any other intoxicating substance.
6. Cover is applicable within the geographic boundary of India.

Features of a Motor Insurance Policy

These are the salient features of a motor insurance policy –

1. Comprehensive Cover

This has been covered under the two major categories of insurance. A comprehensive cover includes coverage for own vehicle and third party cover.

2. Duration of Motor Insurance Policy

Both types of motor insurance policies are valid for 12 months. They are to be renewed every year on or before the expiry of the policy. The renewal done before the expiry of the vehicle can be done online unless the vehicle is too old or severely damaged in the past, in which case an inspection becomes mandatory. New vehicles are often sold along with the insurance itself, the vehicle dealer may also offer to pay the first years’ premium to make the deal more lucrative.

3. Premium Payable

A certain amount is payable in lieu of the motor insurance cover, multiple factors determine the premium amount. Some of the factors are –

• Year of Purchase/Model of Vehicle: The older the vehicle; the higher the premium. The model of the vehicle is indicative of the total years since its manufacture. Often, the year of purchase may be misleading especially in case the purchase is second-hand.
• Fuel Type: Vehicles can be of electric, petrol or diesel type, the premium would differ based on the type of vehicle. Diesel vehicles are likely to undergo wear and tear at a faster pace and hence, the premium would be typically higher. All types of fuel vehicles including electric vehicles are mandated to acquire at least third-party insurance.
• Capacity of the Vehicle: The engine size of the vehicle is determined by the cubic capacity of the vehicle. While engine size does not affect the premium amount, engine capacity affects the annual premium amount. Third-party insurance is calculated using the engine size and hence, the premium for an old car and a new car for third party insurance cover does not vary based on this aspect. For a comprehensive cover, the engine capacity is used to determine the premium. The engine capacity deteriorates based on usage over the years.
• Insured Declared Value: IDV is the maximum value that you are allowed to claim under the motor insurance policy, irrespective of the actual quantum of loss. It is the value of the motor vehicle at the time of availing the comprehensive policy. The concept of IDV is applicable only in the case of comprehensive cover. The IDV is adjusted for the depreciation of the vehicle before the renewal of the motor insurance.
• RTO Area: The location where this is registered influences the insurance premiums – Mumbai, Delhi, Kolkata, Pune, Chennai, Bangalore, Ahmedabad and Hyderabad falls under zone A where the premiums are higher, the rest of India falls under zone B where the premiums are lower.
• Other Criteria: Other criteria that have an impact on the premium payable on the vehicle, are – past claims (higher past claims increases the premium payable in subsequent years since the insurers risk is high), age (younger drivers are considered less responsible, hence a higher premium is charged against older drivers), vehicle condition, modifications done (if any) to the vehicle.

4. Add-On Covers

The add-on covers may be added to the existing base comprehensive policy. These add-on covers can be availed with the payment of an additional premium. Some of the add-on features applicable for motor insurance are –

• No Depreciation Cover: Also called bumper to bumper cover which does not include depreciation factor while computing the premium. If the vehicle were to undergo an accident and subsequent damage, in the case of no depreciation cover, the insurer would not reduce the coverage of the vehicle based on the wear and tear. The vehicle will continue to be 100% insured including the repaired or replaced part of the vehicle.
• No Claim Bonus Protection Cover: If the owner of the vehicle does not raise any claim in a policy year, the insurer rewards the insured by providing a discount on the premium amount in the subsequent year. The no-claim bonus discount increases with multiple years of no-claims by the insured. The discount rate could range between 20% – 50% depending on the number of years the insured has not placed a claim consecutively.
• Emergency Assistance: The insurer will send a mechanic to fix the vehicle in the event of an unforeseen breakdown of the vehicle. This add-on feature is also called 24X7 roadside assistance. They not only provide for a mechanic to jumpstart the vehicle, but they also deliver fuel and tow the vehicle if the vehicle cannot be repaired on the spot. The vehicle will be repaired and delivered to the residence subsequently.
• Engine Protection Cover: This add-on feature offers coverage against expenses incurred against any repair or replacement of the engine especially due to water logging.
• Return to Invoice Cover: If the entire vehicle is damaged, then the policyholder will be entitled to get the original on-road cost of the vehicle insured.
• NCB Protects Cover: A no-claim bonus is applicable only if there have been no claims in the past year or years. However, NCB (no claim bonus) protection cover will ensure that the policyholder qualifies for no claim bonus even if there has been a claim during the past policy year.
• Consumables Cover: Typically, base comprehensive motor insurance plans do not cover expenses incurred due to components such as bolts, nuts, engine oil, grease, ball – bearings etc., These may seem like minuscule expenses on a standalone basis, but when clubbed together, they could add up to a sizeable out-of-pocket expense.

Why is motor insurance or vehicle insurance important?

Third-party motor insurance is a mandated requirement as per Motor Vehicles Act, 1988. The comprehensive cover offers third party insurance alongside own vehicle damage insurance cover. Having any form of insurance is a means of protecting oneself – motor insurance offers financial, medical and property/vehicle protection. Such protection relieves one of mental stress.
Driving a high-risk motor vehicle without appropriate insurance can lead to impounding of the owner of the vehicle. There could be heavy fines charged due to any non-compliance with third party motor insurance. There are some key benefits of availing comprehensive motor insurance –

• Vehicle Coverage: Any damage to the vehicle can come down heavily on one’s pockets, availing of motor insurance will enable one to replace or repair without having to dip into one’s investments or savings. Such unforeseen expenses can be avoided by paying a premium for a substantially huge insurance amount.
• Covers Hospitalization Cost: Any unfortunate accident often results in hospitalization, this could mean having to fend a hefty bill. Having a comprehensive motor insurance cover, one needs to undergo stress to settle such a bill. Most comprehensive covers allow for all types of hospital expenses, thereby ensuring that the insured remains stress-free which leads to a speedy recovery.
• Death Cover: Many accidents could also lead to the death of the vehicle owner, in many cases, the vehicle owner may also be the breadwinner. The family undergoes a lot of financial stress, having a comprehensive cover will ensure that the financial goals are met in the unfortunate eventuality of the vehicle owner. A lump sum amount, also called the sum assured will be paid out in the unfortunate eventuality of the vehicle owner.
• Hedge against natural and man-made disasters: The comprehensive cover provides cover against natural disasters such as earthquakes, hurricanes, cyclones, hailstorms, tsunamis etc., It also covers man-made disasters such as terrorist attacks, spiteful acts, riots, strikes etc., Having cover against these unforeseen events will enable the vehicle owner to remain stress-free.

How to avail Motor Insurance Cover?

There are two modes of availing of motor insurance cover in India – 

1. Offline Mode: In this mode of availing of motor insurance cover, you can choose to walk into the nearest office of the insurer, alternatively requesting for sales personnel to meet you at your place of convenience. The sales personnel will provide you with the required information and carry out the paperwork on your behalf. The sales personnel will receive a commission for the services rendered in this regard. Further, these sales personnel try to sell products that carry a higher commission, they may also try to upsell and cross-sell products that you may not need. This is still the preferred mode of availing of motor vehicle insurance by individuals who are not tech-savvy.
2. Online Mode: This is a contactless, cashless mode of transacting which can be done from the comfort of one’s home. Availing motor insurance online enables individuals to save time, energy and avoid cumbersome queues. Individuals can also compare various motor insurance covers and avail the optimum motor insurance online. This is also a great way to gain as much information as required before availing of the right motor insurance cover.

Documentation requirement for Motor Insurance

The list of documents required to avail motor insurance has been issued by IRDAI, which means that the documentation is the same across all insurers. The documents required for availing / renewing motor insurance are –

1. Identity proof (Government-issued – example – PAN card, Aadhar Card, Passport)
2. Address proof (Passport, Driving license, Aadhar, bank passbook etc.,)
3. Passport size photo
4. Driving license
5. Vehicle registration number/ Registration certificate
6. Pollution test certificate
7. Old motor insurance (for renewal only)

The documentation is the same for both online and offline modes. Many insurers insist that vehicle owners avail of motor insurance online since it increases transparency. They also insist on the policyholders to read the fine print before availing of the policy. Any type of insurance is a complex financial instrument, the individual needs to understand the nuances before availing the same.