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What is Car Insurance and how does it work?

What is Car Insurance and how does it work exactly

Car insurance is an agreement between the insurance company and car owner wherein insurance company would provide financial assistance against the loss of vehicle or damaged done to the vehicle. Car insurance is must these days to ensure coverage of financial loss in case of accident or theft. What is Car Insurance and how does it work exactly?

What is Car Insurance in India?


Car insurance also termed as motor insurance or auto insurance is an insurance policy wherein the insurance company would provide financial assistance in case of loss or theft of the car or damages done to the car due to accident and subsequent liabilities.

The cover level of insurance would be insured party, the insured vehicle and third parties.

Why Car insurance is important in India?


Car Insurance would help car owner to protect from any unfortunate events like car accidents, natural disasters, theft etc.  Beyond this, purchasing a car insurance is mandatory in India. It would attract penalties if one does not purchase car insurance.

How does Car Insurance work?


Here is how the car insurance work.

1) Car owner purchase car insurance based on the value of the car.

2) The car has met with an accident.

3) Car owner approaches garage for car repair. In turn car garage person approaches an insurance company for necessary claim.

4) Insurance company reviews it and approves the claim

5) Garage agent repairs the car and hand over to the car owner.

In case of theft of the company, car owner approaches car insurance company directly for the claim. Based on FIR copy and further documents, the insurance company would release payment to the car owner.

Types of Car insurance in India


There are two types of car insurance plans

1) Third party liability car insurance: This is a mandatory car insurance policy in India, which needs to be purchased while taking a car insurance. In legal terminology, if this plan is not considered, one need to pay hefty penalties along with imprisonment.

2) Comprehensive car insurance policy: This includes third party liability + own damage cover. In simple terminology, car is insured both for third party liability as well as own damage done to the car due to accident or theft of the car.

What is covered in Car insurance plan?


One needs to refer to policy document to check what is covered. Here are the majorly things that are covered in car insurance policies.

1) Third Party Liability Insurance: This covers third party injuries, third-party death and third party property damage

2) Comprehensive car insurance:  this covers third party injury, third party death, third party property damage, theft, fire, calamities, damage to the car due to the accident.

What is not covered in Car Insurance?


There are few things that are not covered in car insurance. Here are the major ones. One should refer policy document for the complete list of exclusions.

Accident or damage caused under the influence of alcohol.

Accident or damage caused under the influence of intoxicants or drugs.

Accident or damage caused without a valid driving license.

Accident or damage caused without having an active car insurance plan. E.g. In case of car insurance policy expired.

Damage caused during the war like situations

Expenses relating to servicing

How is car insurance premium calculated?


There are several factors that would affect car insurance premium.

Insured Declared Value (IDV)

IDV or Insured Declared Value is the market value of the car. This is computed after depreciation on the original value of the asset. Insurance companies can sometimes provide a range of IDV to choose. Higher the IDV, higher the premium and vice versa.

Add-Ons

There could be various add-ons that car insurance companies would offer. One should opt only which are really needed and suitable. Add-ons would come with additional premium. Some of the major add-ons are zero depreciation, roadside assistance, engine protection, passenger cover, invoice cover etc.

Age of the car

Car insurance depends on the age of the car. The older the car, lower would be the insurance premium and vice versa.

Security Devices

If the car is equipped with anti-theft devices, insurance company would charge lower premium.

No Claim Bonus

Car insurance premium also depends on historical claims. If there are no claims earlier, No claim Bonus (NCB) benefit is provided by way of discount and the insurance premium would be lowered.

Where can you buy car insurance policy?


Car insurance policy can be purchased online, offline with any branch office of the insurance company or from an agent who may operate in the branch office of the car showrooms / authorized centres.

Suresh KP

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