Types of Car Insurance Policies

Are you planning to buy a brand-new car anytime soon? Or did you recently purchase one? Buying a vehicle is nothing short of an investment. 

You must consider monetary aspects like, be it a down-payment, an auto loan, or registration expenses. But have you ever thought about protecting that investment? If not, then you’re at the right place, as we’re going to discuss car insurance policies and car insurance types at length. 

Car insurance provides financial protection against vehicle damage, loss, or theft. It works almost the same as any other insurance plan and you pay a premium to avail the policy benefits. But the one key difference is that motor insurance is mandatory in India. 

Section 146 of the Motor Vehicles Act states that no individual can drive a vehicle without an insurance plan in India. The law applies to third-party car insurance. It is one of the three car insurance types available in India – which this article will shed some light on. 

So, let’s get started.

Key Takeaways  

• A car insurance policy is designed to provide financial protection in the event that a vehicle suffers total loss, damage, or theft. 
• There are a total of three car insurance types available in India. 
• Only third-party car insurance is mandatory by law. 
• Total sum insured is calculated by considering the vehicle’s Insured Declared Value (IDV). 
• The premium for car insurance policies is influenced by factors, such as the model number, engine type, safety features, the type of motor insurance policy, and more. 

Types of Motor Insurances You Should Know About Before Driving Forward  

While we did briefly explain how car insurance policies work, a detailed look at their types will help you understand the concept better. So, here are the three car insurance types offered by insurers in India: 

Third-Party Car Insurance Plan 

As we mentioned earlier, the law requires every vehicle owner in India to have third-party car insurance. However, since it can be hard to understand how this particular insurance plan works, here’s an example: 

Let’s say that Richa, a 27-year-old woman who drives a hatchback and has third-party insurance, is involved in a road accident with the driver of an SUV. As a result of the accident, the said driver suffered physical damage to his car and also faced hospitalization for minor bodily injuries. Now it is Richa’s responsibility to pay for the individual’s medical as well as vehicle repair expenses. 

But does this mean that Richa has to pay the hefty sum from her own pocket? Well, thankfully not, because she has third-party insurance. This saves her from an unexpected financial burden as her insurance provider will offer financial compensation to the third party, which in this case is the driver of the SUV. Also, to make it clearer, Richa is the first party, whereas the insurance provider is the second party. 

So, in short, third-party car insurance covers all third-party liabilities resulting from an accident or mishap involving the insured vehicle. Sounds too good to be true, right? We agree, but it most definitely is true! 

Personal Damage Car Insurance Plan 

The second car insurance type popular in India is the personal damage plan, which is also commonly known as own-damage car insurance. While this type of motor insurance is not a legal requirement, it is a great way to protect yourself against financial damage. 

This is because personal damage car insurance policies provide financial compensation for accidental damages to your vehicle. For instance, if Richa (who has personal damage car insurance) gets into an accident that severely damages her car, the insurance company will pay all the associated repair/replacement expenses. 

But this policy is not limited to road accidents, as it also includes theft, explosions, fires, and sometimes even natural disasters. Additionally, if Richa sustains any injuries from the accident, she can also file a claim for her medical expenses. Also, she must already have a third-party car insurance policy to buy this plan. 

However, considering that approximately 4,50,000 accidents and 1,50,000 related deaths take place in our country annually, everyone (and not just Richa) should invest in a good personal damage car insurance policy.

Comprehensive Car Insurance Plan 

Now that you know how third-party and personal damage car insurance policies work let’s understand comprehensive car insurance. And we should tell you; it is also another popular car insurance type among the Indian population. So, how does it work? 

As the name suggests, a comprehensive car insurance plan offers complete protection to you and your vehicle. You can say that it is a combination of the other two car insurance types we just discussed, as it offers financial coverage for both third-party damage and personal damage. 

For example, if Richa (who recently purchased comprehensive car insurance) is involved in a car crash that results in damage to her vehicle as well as the third party’s vehicle, the insurer will provide monetary compensation to both Richa and the third party (the other driver) involved in the crash. 

This car insurance type also covers damage or loss resulting from theft, fire, explosions, and in some cases, even natural calamities. Additionally, you don’t need to purchase an individual third-party policy if you purchase this plan, which is what makes it the preferred choice for many. 

Insuring Your Joy Ride: Here’s What to Look for In a Car Insurance Policy  

Now that you are familiar with the different car insurance types, here are three key things you should look for in a policy, no matter which one you buy: 

Extensive Coverage	Compare car insurance quotes to get extensive coverage with maximum inclusions when buying car insurance.
Accurate IDV (Insured Declared Value)	IDV, or the current market value is the sum you receive in case of theft or damage to your car. So, make sure you check if it is accurately calculated.
Add-On covers	Riders are designed to extend the coverage of your insurance plan. Therefore, always look for insurance policies offering add-on covers, as having that option always comes in handy.

Did You Know?  

In 2019, the state of Tamil Nadu was the largest contributor to the country’s total tally of road accidents. The number of accidents that occurred in Tamil Nadu during that period was approximately 57,000, whereas Madhya Pradesh reported nearly 51,000 accidents. 

Benefits That You Get with Car Insurance  

Although buying car insurance is a legal requirement in India, it’s best to know its benefits, and here are a few: 

Monetary Assistance 

As you must know by now, one of the key advantages of buying car insurance is financial protection. Depending on which car insurance type your purchase, you (or/and the third party) will get complete monetary assistance in case of property damage or bodily injuries. 

Additionally, some car insurance plans also offer a death benefit, meaning your family gets a lump sum amount as financial compensation in the unfortunate event of your death. So, having car insurance will not only provide you and your loved one monetary assistance during such unexpected situations but will also offer peace of mind. 

Riders or Add-On Covers 

As we discussed earlier, you have the option to choose riders or add-on covers with your car insurance policy. While this facility is not available for third-party car insurance type, it is a great way to increase your policy coverage by simply paying a nominal additional amount. 

For example, you can select riders or add-on covers for engine protection, roadside assistance, towing assistance, ambulance expenses, vehicle replacement, and more. 

No Claim Bonus (NCB) 

Today, several insurance providers across India offer a No Claim Bonus (NCB) on most types of vehicle insurance, which is an added advantage. So, how does it work? A No Claim Bonus is basically a pre-fixed amount that is added to your sum insured or total coverage amount as a bonus for not making any claims during a financial year. 

It is an excellent way to increase the coverage of your car insurance plan, and all you have to do is be a responsible driver (which you should anyway). However, it is possible that some might not offer this inclusion, but don’t stop looking! 

Service Benefits 

Once you purchase a car insurance policy, in addition to financial protection, you also get certain service benefits offered by the insurance company or provider. Some examples include round-the-clock customer service support, cashless and hassle-free claims, easy renewals, a wide garage network, and more. 

Therefore, when you browse the different types of motor insurance policies, make sure you choose one offering the maximum number of service benefits. 

Word to Remember  

Zero Depreciation Cover 

A zero depreciation cover is an add-on that you select when buying car insurance. If you purchase this rider, your insurance provider will not charge you the depreciation value of the vehicle’s damaged or replaced parts. This means that you can claim the full amount even if your car parts are damaged or require replacement. 

Stop. Look. Go.  

So, there you go, now you have all the information you need regarding car insurance types, including their benefits and what to consider when buying a policy.  Remember, it doesn’t take much to be a responsible driver, but it definitely does take a lot to be an irresponsible one. Make the right choice and invest in motor insurance today! 

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