Owning a car and getting it on the road comes with an additional responsibility of having a mandatory car insurance policy. This will come handy to cover the expenditure in case the car gets involved in an accident, damage or there is theft or burglary of the car. All new and used cars need a valid car insurance policy always. The coverage, however, can vary depending on the type of policy chosen. In India, policies come with one year validity and needs yearly renewal.
The major type of car insurance policies in India are: (1) Comprehensive Policy – also known as Package policy and (2) Liability-only Policy – also known as Third Party Policy. Several factors influence the selection of the right policy.
Factors to determine the Selection of Policy are:
(1) Risks related to Vehicle – The size, make and fuel type of the vehicle determines the insurance premium. Bigger vehicles will have higher premiums because of higher Insurance Declared Value (IDV) and the cost to cover in case of theft and damage. Diesel vehicles have premium 10-15% higher than their petrol counterparts. For newer vehicles (less than 5 years old), depreciation is applied to calculate the IDV on the Ex-Showroom price. For older vehicles premium is based on IDV.
(2) Risks related to Location of Vehicle registration. Urban and densely populated areas are more prone to accidents and have higher premium of car insurance policy. If theft is high in that location, premium goes up.
(3) Driver profile – People of certain profession,like doctors, accountants enjoy lower premiums. Also as people grow older, with higher maturity and driving experience, get benefit on premium. If there are multiple drivers, then premium goes up.
(4) Claims history – A claim causes rise in premium in the following year. No claim history helps to score a lower premium on the car insurance policy.
(5) Security Features of the Car – Built-in features like immobilizers and anti-theft alarms reduce the premium by reducing the change of being stolen.
Type of Car Insurance Policies Available
(1) Comprehensive Policy or Package policy–This policy provides the overall protection against a wide range of damages and bodily injuries of the owner and the vehicle as well as for the other car involved and its driver. Passengers also could be included in the coverage, with certain add-ons and depends on the insurance company. Comprehensive coverage includes Accidents, theft, Vandalism, fire, natural disasters like flood, storm, hurricane or tornado, falling objects, damage done by animals, as well as riots and other civil disturbances that damages or destroys the car.
Certain Add-on options like coverage of accessories and engine, medical expenses, no-depreciation coverage are highly popular since it gives overall coverage for the policy holder.
However, certain things are not included under comprehensive coverage like natural wear and tear, depreciation, Mechanical and electrical breakdowns, damage due to drunk driving or unlicensed driving and damages due to war, mutiny or nuclear weapons.
Comprehensive policies are useful when your vehicle is costly and any repairing any damage is costly on your pocket. Though premium is high, the different risk reducing measures can get a comparatively pocket friendly premium for your comprehensive coverage. As the car gets older, the comprehensive premium reduces.
(2) Liability-only Policy or Third Party Policy–Here the policy covers the damages made to the car and the physical injuries to the third party. This is the minimum insurance coverage a person can take and is the mandatory car insurance policy that all cars in India must possess as per the Motor Vehicle Act of 1988. It protects the owner from any legal issues due to damage or bodily injury of a third party caused by the insured policy holder in case of accidents.The compensation for the damages of the owner’s vehicle or medical coverage for injuries of the owner is not covered under Third Party policy. Also, any theft, vandalism or damage due to natural calamities for policyholder’s car is not covered. Since the coverage is far low, third party insurance premium is always much lower compared to the premium of Comprehensive policy. If the vehicle is older and out of pocket expenses are lower than higher premium in case of minor damage, then third party insurance is the preferred one.