What is Car Insurance and why is it important?
Car Insurance is a safeguard against the damages that follow the events of an unfortunate accident or a natural calamity to your vehicle and the inhabitants of the car. Additionally, Car Insurance covers the protection in case of legal claims of a third party due to an accident caused by you
The Motor Vehicles Act, 1988, under section 146, dictates that every vehicle in the country must be insured for third party risk. The ever increasing number of accidents, the casualties and disability among the victims, desperately needs to be curbed and thus, car insurance is considered as a must for car owners.
Is it mandatory to have Car Insurance in India?
Yes. According to the Motor Vehicles Act 1988, it is mandatory for every car buyer to get its vehicle proper insurance at the time of purchase in the country.
What are the types of Car Insurance options available in India?
There are two types of car insurance options available to the buyers – Third party Insurance and Comprehensive Insurance.
- Third party Insurance
- Comprehensive Insurance
It covers the damages incurred by the policy holder in case of an accident or physical injury/death to a third party. The law dictates every buyer should have a third party insurance. However, this option does not include insurance coverage for you, your co-passengers and your vehicle in case of an accident.
Safety cover allows compensation for losses incurred by you, your co-passengers and your car along with the third party safeguard.
Out of the two, which is a better insurance option - comprehensive or third party?
Comprehensive Car Insurance - It is more appropriate since it covers the Third Party Insurance and also provides compensation for damages to one's own car, co-passengers and self in case of an accident.
What are the requirements for obtaining a Car Insurance?
You must inform the insurer of all the past history and details of your driving, users of the vehicle, details of the vehicle and the locations where the car had been used. The insurer will then suggest the best option for the insurance of your car according to your requirements. People, who refuse to share details by not being completely honest, run the risk of having their insurance cover getting discarded.
Why do distinct insurance firms offer different premium slabs?
Every vehicle insurance company has its own compiled data and methodologies to carry out the calculation of premium amount, which adheres to the strategy devised for attracting customers to its doors. Taking into account of the bestowal of discounts, every insurance company comes up with different premiums and consumers have to decide which way to go for, according to their needs.
What factors are taken into consideration while determining the premium amount?
Every vehicle insurance company before deciding the premium, considers the maker and model of the car, the year in which the vehicle was assembled, place of registration, current showroom cost and the category of client – individual or corporate owner. The price of the vehicle also affects the principal insurance amount, thereby influencing the consequent premium cost.
For the customers applying for the renewal of the policy, the insurance company takes into consideration the compensation claim records of the policy owner. If the claimant has applied for reimbursement few times in the past, the company lowers the prescribed premium amount. Accordingly, if the policy owner has not claimed for compensation during a specific period, then the insurance firm reward the owner with a 'No claim bonus'. Usually the period is of five years.
What if I do not receive an Insurance certificate at the time of purchase?
If the insurance certificate is not provided by the insurer at the time of purchase, the buyer gets a provisional insurance document called 'cover note', which acts as an insurance proof and a vehicle can be registered in accordance with it. The temporary cover note holds validity for 60 days following the issuing date and afterwards, the original policy certificate is issued to the buyer.
How does the Legal Liability protect a paid driver?
Legal Liability provides legal reimbursement claimed by a third party against the driver for physical damage/loss in the event of an accident. The car insurance covers the driver for an amount equal to his salary during the policy period along with the occupational hazards and accidents.
Can I purchase a policy for a vehicle belonging to some other person?
Yes. Anyone can buy insurance on behalf of the person insured.
Can a policy renewal be done online?
Yes. It can be done if the policy is renewed between the period commencing two months prior to the expiry date and six days following the expiry of previous cover.
What will happen in case an accident occurs in a city other than the one where the Car Insurance was issued?
The Car Insurance policy is valid throughout the Indian Territory regardless of where the accident had happened.
In the event of an accident, how does the insurance firm pay for the reimbursement of the following -
(I) Sum of depreciation according to the rate prescribed
(II) Reasonable cost of salvage (in case it is not repaired at the facility)
(III) Voluntary deductions mentioned in the policy, if you have opted for any
(IV) Mandatory excess levied by the insurance firm
(V) Advance payment by the company according to an approximated damage sum
Every motor vehicle insurance company operates with their own formulae and manner in handling the compensation mechanism. Most firms provide cashless claim facility and handle the reimbursement procedure themselves, enabling the client free from paying towards repairs.
Besides the cashless alternative, companies also provide a non-cashless service, which entitles the claimant to be compensated once all the details of payments towards repairs and service bills have been submitted to the company by the him. Once the bills are submitted, the company evaluates them and then compensates the claimant.
Further, in non-cashless if the claimant couldn't cover the entire payment, then it must notify the insurance representative and the company will provide the excess payment.
What important vehicle documents are needed for claiming insurance?
A Certificate of Insurance issued at the time of purchasing formalities proves that owner of the vehicle has a valid car insurance and only the owner of the vehicle can apply for an insurance claim. The insurer has to be made aware prior to the claim announcement. Further, if the certificated is found to be deformed, scratched or lost, then a replica of the original can be obtained by paying a fee and submitting an affidavit stating the requirement of the replica.
Regional Transport Office issued Driving License proves that the claimant is authenticated to drive a particular vehicle type and it is illegal to drive a vehicle without a valid license. Those who fail to comply with the regulation are liable for a penalty.
Registration Certificate of a vehicle proves that a motor vehicle is duly registered by the claimant and follows the Indian Motor Vehicle Act, 1988. The Law dictates that the owner of a vehicle must carry the Registration Certificate or an attested copy in person while driving.
What situations are not covered under Car Insurance?
Depreciation, substantial losses, mechanical and electrical failure of the vehicle along with driving under influence (DUI) or vehicle driven by some one other person than the one stated in the insurance cover, such situations are not covered by Car Insurance. Further, vehicle insurance does not provide damage compensation, if the vehicle is used outside the geographical area mentioned in the insurance agreement.
What is a voluntary excess and how is it beneficial?
Voluntary excess is an option provided to the client to bear a fraction of the damages in every claim amount. The insurance firms provide some discount on the premium amount, if the client opts for voluntary excess at the time of insurance formalities.
How does Car Insurance safeguard the security of victims?
The primary objective of the vehicle insurance policies is to ensure that the injured victims and legal dependants of the fatal victims, are rewarded a compensation for their losses. Car insurance is beneficial as the company takes care of the damages, while both vehicle owners and the victims of an accident are saved from dispensing money from their own pockets, as compensation. Further, without the car insurance there's no compensation whatsoever, for the owner of the vehicle or the accident victims.
Can compensation be claimed if only vehicle is covered under insurance?
Compensation can be claimed if the vehicle is protected by a valid insurance cover and the driver must hold a valid Driving Licence issued by the Regional Transport Office (RTO). Further, if the accident features a Commercial Vehicle then the permit validity is taken in consideration along with the observation of fitness of the driver.
What is the procedure of applying for an insurance claim, post accident?
Following the aftermath of an accident, an investigation by the local police is required for claim purposes. The procedure starts when the Police officers prepare a spot panchnaama and charge-sheet for the vehicle owner, mentioning the accident details and driver, victim identities. Further, important documents like insurance records, driving license of the vehicle owner and certificate of registration are needed to be submitted to the insurer, in order to apply for the damage compensation, as per the Indian Motor Vehicle Act, 1988.
Insurance can only be claimed by the registered owner of the vehicle, or as per the name stated in the insurance clause. If there is a fatality claim, age and income proofs need to be submitted, whereas for injury, medical and employment proofs are required. All the above documents have to be given to the insurance company.
In case of a fatality claim, the insurer obtains the age and income proof of the deceased victim and then proceeds with further formalities. Upon the completion of all the processes and verification, the insurance company compensates the victim's family.
In case of an claim following an injury incurred by a victim due to the accident, proper medical receipts and employment proof of the victim, needs to be submitted to the insurer. The insurance company then evaluates the documents and determines the damage compensation amount according to its self devised formulae. The company reasons the compensation sum in accordance with factors like age and income of the deceased, besides the person who deserves the claim sum. Also, the medical expenses and treatment duration of the victim are taken into account for the determination of compensation sum.
Apart from fatality and injury claim, a functional disability claim is also acknowledged by the insurance company. The functional disability claim applies in the case, when a victim suffers injuries that could result in disability or could impact his/her earning capacity. The insurance company then provides suitable compensation according to the scale of damages incurred by the victim.
What factors should one keep in mind while purchasing Car Insurance?
For purchasing the best insurance policy for your vehicle several factors should be carefully evaluated, such as Insured Declare Value (IDV), voluntary excess and No claims bonus among others. Further, it is suggested that one should not blindly follow the insurance broker and must cross-check everything clause on the hard-copy of the insurance agreement. Insurance companies advice their clients to refrain from withholding any important information and must declare all the relevant details on the proposal form. One can also obtain additional personal accident insurance for the driver and co-passengers, which is a great option to provide security to the inhabitants of the vehicle.
Consider the 'Cashless' insurance cover option and currently, many of the car insurance firms have mutually beneficial tie-ups with several partners in the city, which take no compensation money from the claimant and do all the transactions directly with the insurer.
Further, it is highly convenient to buy insurance from a professional insurance broker, as they are well versed with the policies of different firms and could be helpful in deciding the best policy according to one's needs and requirements. The brokers are not biased to any firm, as regardless of the company they are paid a commission on the sale of every policy. You can also ask the insurance broker for his license number and can verify the same on the IRDA website.
What is a IDV in Car Insurance?
Insured Declared Value or IDV in monetary terms is basically the present market value of the insured vehicle. It is the greatest assured compensation decided by the car insurance firm that is awarded in case of theft or the total loss of the vehicle. Following the loss of an insured vehicle, the insurance firm is obliged to provide the IDV sum as compensation to the claimant
IDV is regularly revised according to the vehicle maker's listed selling price after subtracting the depreciation, besides the registration and insurance costs are not included in the calculation of IDV. The depreciation system is described below :
|Age of Vehicle||% Depreciation for revising IDV|
|Less than 6 months||5%|
|More than 6 months but less than 1 year||15%|
|More than 1 year but less than 2 years||20%|
|More than 2 years but less than 3 years||30%|
|More than 3 years but less than 4 years||40%|
|More than 4 years but less than 5 years||50%|
IDV= (Vehicle maker's listed selling price - depreciation) + (Cost of accessories, excluding the listed selling price - depreciation) and minus the registration and insurance costs.
What is the importance of Insured Declared Value in Car Insurance?
Insured Declared Value (IDV) is maximum compensation amount dispensed by the company to the policy holder, in case of the loss of a vehicle. Hence, it is very important to ask for the amount closest to the market value of the vehicle. Motor vehicle insurance companies offer their clients, options to decrease the IDV by 5 to 10 per cent. Further, smaller the IDV amount goes, the lesser will be the premium.
What is a 'No Claim Bonus' in Car Insurance?
No Claim Bonus (NCB) is a discount presented to the car owner / policy holder on the motor vehicle insurance premium by the insurer. Usually the No Claim Bonus is acquired over a period of time, for example a policy holder can claim the NCB if no compensation was awarded by the insurance company during the previous policy year. Further, if a policy owner is eligible for NCB, he/she can get a 20-50 per cent discount on the Own Damage Premium sum.
All Insurance firms help the policy owners in saving money on the motor vehicle insurance and also reward them for their good driving skills.
The table below summarises the discount on the insurance premium according to the number of claims in consecutive years.
|No Claim Bonus evaluation period||% Discount on Premium Amount|
|No claim made or pending during 1 year succession of insurance||20%|
|No claim made or pending during 2 year succession of insurance||25%|
|No claim made or pending during 3 year succession of insurance||35%|
|No claim made or pending during 4 year succession of insurance||45%|
|No claim made or pending during 5 year succession of insurance||50%|
Can an insurance company forfeit the No Claim Bonus? If yes, then under what situations?
Yes, an insurer can forfeit the NCB and two scenarios govern this decision:
- The company will not provide NCB in the next year, if a damage compensation claim is made by the policy holder during the current policy period. The policy owner is not eligible for NCB for the following year, if a claim is filed in the ongoing year.
- If the policy holder fails to get the renewal of the insurance cover within 90 days of the expiry date, the insurer holds the right to forfeit the NCB.
Can the insurance company transfer the NCB from an old vehicle to a new vehicle?
Yes, it is possible to transfer the NCB from an old vehicle to a new vehicle, provided that the transition occurs within the same class and type of the vehicle. It is advisable to consider certain things before commencing the transfer procedure.
While selling the old vehicle, one must ensure that the ownership transfer is done and the record must be kept as a photocopy in the Registration Certificate for future insurance requirements.
Secondly, the NCB certificate should be obtained and a duplicate copy of the delivery note must be forwarded to the insurance company office. Then, the policy holder must get the new NCB certificate or a holding letter, which remains valid for three years. Last of all, while purchasing the new vehicle, the policy holder must submit the NCB certificate to the insurance company for the new vehicle protection policy.
Types of Car Insurance Schemes
Car Insurance or Motor Vehicle schemes are devised according to the types of damage coverage and are available as two types in the country – comprehensive policy and third party policy.
Comprehensive car insurance policy
The comprehensive car insurance policy covers the losses or damages afflicted upon the vehicle and its insured components, in the aftermath of some natural disaster or a man-made mishap along with the personal compensation for the driver and passengers of the vehicle involved in the accident
Besides the personal accident coverage, comprehensive policy also includes third party legal liability protection, which protects the policy owner against legal obligation stemming from an accident involving permanent disability, injury or death along with a damage to the property. Additionally, the comprehensive car insurance policy also provides protection in cases of theft and fire if the vehicle was not in active use, like locked at some obscure garage.
The disasters covered by comprehensive insurance policy are broadly divided into two categories
1) Natural Calamities
There are many instances when a vehicle incurs damages from natural calamities like floods, landslides, and after-shock losses due to earthquakes, rockslides, hurricanes, typhoons, cyclones, lightning strikes, storms, fire, explosion, hailstorm, prolonged precipitation and frost among others. As there are no possible means to avert such disasters, car insurance companies provide protection in case of such events
2) Man-made Calamities
The man-made factors contributing to the damage to vehicles comprise theft of the vehicle, burglary, housebreaking, riots, malicious actions, accident by physical means, terrorist attacks, strikes along with the losses while travelling. Man-made calamities can be avoided if proper actions are taken in time, but in most situations things go so far ahead that evasive actions taken are late and hence, fail miserably.
Third Party Insurance Policy
Car insurance policies are an agreement between two parties insurer and the insured, such that the insurer provides a compensation sum to the claimant (insured) for the losses or damages incurred by the policy owner, in the event of an accident. The 'Third Party' comprises the people who have suffered damages during an accident and are neither the insurer nor the policy owner.
Usually, third parties are primarily pedestrians, fare paying and non-fare paying passengers in the vehicle. The fare paying passengers comprise those who use public transportation systems, such as buses, auto rickshaws and taxis, while the non-fare paying passengers are those who are not charged for travelling in a vehicle.
The third party insurance policy ensures protection to the policy owner for his legal obligation towards the reimbursement for the damages/losses caused by an accident involving his car. This policy provides compensation for death or injury to third parties, such as occupants of the other vehicle involved in the accident, pedestrians and other unfortunate people suffering from damages due to the accident. The vehicle owner of a third party policy is safeguarded by the insurance company, against the death or injury incurred by the co-passengers of the vehicle for hire. Additionally, the damages/losses afflicted upon the third party property are compensated by the insurance company.
Types of damages covered by Vehicle Insurance in India
The Constitution of India has made car insurance or motor vehicle insurance mandatory for all citizens and it is a legal mandate to have an insurance cover before driving a vehicle in the country. The Motor Vehicles Act, 1988, under section 146, has made it compulsory that every vehicle in the country must have a minimal security cover for the third party risk.
The car insurance provides protective cover for the losses like property damage liability, bodily injury liability, medical payments, physical damages to the vehicle following an accident along with uninsured and under-insured motorists.
Bodily injury liability covers the claims of victims due the physical injuries incurred by the policy holder and occupants of the vehicle during an accident. The compensation dispensed by the insurer supports the victims on their medical bills and overall rehabilitation. The Property damage liability provides protection for the damages to a third party, including bodily injuries and vehicle repairs.
The car insurance companies also support the medical payments of the policy owner and the other inhabitants of the car. Further, insurer also provides coverage for the uninsured and under-insured motorists, in the case when a negligent driver has no insurance or scarce protection cover. The uninsured and under-insured liability cover allows compensation against physical injuries and property damages in most of the Indian states.
Additionally, the physical damage protection to a vehicle is covered in two situations- first being damages incurred by the vehicle in a collision accident, when a vehicle collides with another vehicle, immovable object or other things regarding such criteria. The second physical loss coverage comprise non-collision events including damage to the vehicle due to natural catastrophe like floods, earthquakes or the breaking of wind-shields during a storm or a lightning strike.
The burgeoning sale of motor vehicles in the country year-on-year has led to the flourishing of several Car Insurance providers in the market. Thus, with the arrival of numerous insurance players, sometimes it gets extremely bugging and confusing for the consumer to decide which insurer and scheme should he go for.
The Motor Vehicle Insurance industry comprises both public and private players in the domestic market. The Indian public sector auto insurance players are United India Insurance Corporation Limited and Oriental Insurance Company Limited. The prominent private auto insurance vendors include HSBC India – Auto Secure, TATA AIG - General Insurance, Bajaj Allianz, ICICI Lombard - Motor Insurance, Maruti Insurance and Reliance General Insurance Company Limited.
The Motor Vehicle Insurance industry in the country is growing at a breathtaking pace and is anticipated to exceed $ 400 billion turnover by the year 2020. Further, the average Indian vehicle owner is provided with umpteen types of insurance policies and schemes, which cater to his every need. However, it is highly advisable to carefully consider all the ramifications of a policy, besides comparing the options available in the market according to your requirement, before purchasing an insurance policy.
The apex autonomous statutory body, Insurance Regulatory and Development Authority (IRDA), controls the entire insurance industry in the country, which was validated by the Indian Government and the Parliament under the Insurance Regulatory and Development Authority Act, 1999.
Factors affecting the car insurance premium amount
Insurance premium amounts vary with the different insurance firms. Hence, certain guidelines need to be followed while purchasing the motor vehicle insurance policy. One should browse the market for the lowest possible vehicle insurance quote or maybe utilize the services of professional insurance brokers.
The motor vehicle finance market is flooded with different insurance schemes, each catering to specific needs and requirements of customers. The premium amount for the policy is also devised following different methods and formulae, which one must carefully understand before buying the policy.
The factors that determine the exact motor vehicle insurance premium amount are summarized as follows:
1. Car details
Car details comprise the fundamental information about the manufacturer of the vehicle, segment in which the vehicle falls and the model of the car. For example- 'Maruti Suzuki India Limited' is the manufacturer; 'entry-level sedan' is the segment while 'Swift DZire' is the model. Further, the fuel type of the car (diesel, petrol or CNG) is also considered during the calculation of premium. The basic information of the car's history are also taken into account like manufacturing year, place of registration of the vehicle, number of kilometres driven and the modifications performed on the car. The current showroom price of the car is incorporated in the calculations too.
2. Driver details
In the determination of the premium amount, at the time of buying the insurance policy, the age and experience of the driver are considered as well.
3. Voluntary excess
Voluntary excess, if agreed also impacts the premium sum, the higher the voluntary excess amount is agreed, the premium amount is reduced.
4. Insurance policy coverage
Further the Coverage level of the insurance also contributes in the calculation of premium amount, which payable by the policy owner. The higher the insurance coverage goes, the greater will be the premium amount and vice versa.