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Types of Motor Insurance in India: A Comprehensive Guide

Types of Motor Insurance in India: A Comprehensive Guide

Purchasing a vehicle is a major investment, but the costs don’t stop there. Insuring your car or two-wheeler is crucial for financial protection, yet India’s myriad motor insurance options can be daunting for buyers. Given the importance of choosing adequate coverage, it’s valuable to understand the key types of policies available. 

Importance of motor insurance

Car insurance is crucial to protect yourself financially if you get into an accident or your vehicle gets damaged. Without insurance, you could pay massive amounts out of pocket for repairs, which could be financially devastating. In addition to protecting you financially, third-party motor insurance is mandatory by law in India.

So, having at least basic coverage is crucial to following the rules of the road and being a responsible driver. Moreover, insurance can give you peace of mind and save you money in unexpected situations.

Types of motor insurance

The different type of motor insurance are as follows:

Third-party liability insurance

Third-party liability insurance is the most basic type of auto insurance and is mandatory in India. You’d be covered if you caused damage to another person’s property, like their car or building, or injured them in an accident. But it doesn’t cover any damage to your vehicle.

Own damage insurance

Own-damage insurance is stand-alone coverage. Under this plan, the policyholder gets insurance coverage only for their own damages. It would cover your car if things like natural/man-made calamities, fire, explosions, theft or any other mishaps occur.

Comprehensive insurance

Comprehensive insurance is complete coverage. Comprehensive insurance would cover your car if things like fire, flooding, or theft damaged it. It also includes third-party liability. So, comprehensiveness gives both you and others on the road protection.

Add-ons and riders for motor insurance policy

Here are some common motor insurance policy add-ons:

Depreciation cover. This cover protects you from the cost of depreciation for damaged car parts. It ensures that the full cost of replacing damaged car parts is reimbursed with new ones during a claim settlement.

Engine protection cover. This cover protects you from consequential losses to engine and gear box parts because of water ingress and oil leakage due to accidental undercarriage damage. It would cover such damages and pay for the repair or replacement of the damaged engine parts of the car like nuts, bolts, screws, lubricants, etc.

Roadside assistance. With this cover, you get assistance in situations like car breakdowns, flat tyres, fuel refills, battery jump-starts, etc. where your car is immobilised on the road.

Factors influencing premium rates

Vehicle type and model. An insurer will charge more for vehicles that are more expensive to repair or replace, just like luxury cars or sports cars. They also tend to charge more for vehicles that are stolen more often.

Insured declared value (IDV). The IDV of your car influences the premium of your car insurance. Higher IDV results in higher premiums, whereas lower IDV reduces car insurance premium.

Geographical location. Premium rates can vary a lot depending on where you live. If you live in an urban area with high rates of accidents, theft, etc., you’ll pay more. Certain cities and states have higher insurance costs.

Previous insurance claim history. If you have submitted insurance claims for accidents or damages that were your fault in the past few years, your insurance company sees you as a higher risk. With fewer claims, your premiums will stay the same over time. A clean record with no at-fault accidents or claims leads to lower rates.

Takeaway

Choosing the right motor insurance policy in India can seem overwhelming, given the many options. The key is understanding what risks you want to safeguard against to select adequate coverage for your needs and budget. While third-party liability is the legal minimum, comprehensive or add-ons like zero depreciation better protect your investment. 

Evaluating all factors that influence premiums helps find the most savings, too. With this guide’s assistance, you can now shop insurance policies feeling well-informed and empowered to make the best choice.

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Owning a car comes with a great feeling. However, owning a car comes with its responsibility. It will help if you abode by the rules and regulations of the country before you can drive on public roads. One of the essential laws for you to follow is buying auto insurance for your vehicle before driving on public roads. Whenever you witness people discussing car insurance, you probably might have heard the term “third party” or “first party.” If you are not conversant with insurance terminologies, you probably do not know what those terms mean in the context of auto insurance. Read on to know everything about “third party” or “first party” in auto insurance and the significant differences.

Types Of Parties Involved In Auto Insurance:

Vehicle insurance is a contractual agreement between two parties. This contract also discusses implications concerning both parties. Before you get confused, here’s an improved explanation of the types of parties in auto insurance:

First Party

You must have heard the statement ‘the customer always comes first’ countless times. It is a simple method to comprehend and recollect who is the first party in auto insurance. The first party is you, the customer. When you buy auto insurance coverage from a certified insurance company, you become the First Party regarding the agreement.

Second Party

The insurance company you buy the insurance policy plan from by paying the required insurance premium is the Second Party in the contract. The Second Party accepts your money and offers certain protections, a promise bound by the agreement. The Second Party, which is the insurance company, assures the First Party that is you, that if anything happens to your car, the company takes responsibility for its care depending on the terms and conditions of the policy.

Third Party

It may very well be anybody; for instance, a walker strolling in the city. These Third Parties can get injured or their properties damaged due to an accident caused by your (First Party) vehicle. When this happens, the First Party is responsible for remunerating the Third Party in such situations, and due to the First and the Second Party having an agreement in place. The insurance company will deal with the liabilities as part of the third party insurance coverage.

What Is First Party Auto Insurance?

First Party insurance is a policy that protects you and your vehicle. It is also known as Comprehensive auto insurance coverage. This policy comprises the third party Liability cover, the Own Damage policy, and a Personal Accident Liability cover. The Own Damage plan is one of the significant policies of First Party insurance. It protects you and your car in case of an accident or natural disasters or riots etc. For instance, your insurer will compensate you for damages to your vehicle in case of fire, natural phenomenon, vandalism, terror attacks, etc. Theft is also covered in this type of policy.

What Is Third Party Auto Insurance

A third party auto insurance policy is a policy where the benefit is provided to a third party. This policy allows the second party (i.e., the insurance company) to pay any third party (i.e., other people) legal liabilities of the first party (i.e., you) to the third party. The legal liabilities arising out of the first party causing bodily injuries or damages to the third party with his/ her vehicle. For instance, you accidentally hit a pedestrian with your car. Legally, it is your responsibility to pay compensation to the pedestrian (third party victim). But with third party auto insurance coverage, your insurer will pay the pedestrian (third party) on your behalf.

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Owning a car comes with its share of maintenance expenses. Maintaining a vehicle can be very expensive owing to the ever-increasing maintenance costs. So, investing in good auto insurance coverage makes sense to protect you from those additional expenses arising out of any eventuality!

So What Is Own Damage Insurance Policy

As the name implies, an Own Damage policy (OD) is a personalized auto insurance coverage that protects you and your insured vehicle against damages due to accidents such as fire, theft, etc. In the event of an accident, an own damage policy pays for the expenses to repair or replace parts of your vehicle damaged in the accident. For example, let us say you parked your car at its usual place and all of a sudden your neighbor’s cricket ball git one of its windows or probably a coconut falls on the windscreen and leaves not only shackles but dents too! You might be looking at hefty losses in retrospection, but in such circumstances, your damage insurance can get you out of such an unfortunate incident.

Who Should Get Own Damage Insurance?

When looking to purchase auto insurance coverage, you have the option to buy a limited cover or one with an extensive range. As for many, they go for the limited scope, which is the third-party liability policy. The main disadvantage of purchasing this type of auto insurance policy is that it does not offer you or your car protection. So if you are carrying third-party auto insurance coverage, you might also want to purchase a standalone Own Damage policy to protect your vehicle from damages and losses.

What Is Covered In Own Damage Insurance Policy?

Own damage insurance policy covers the cost of damages or loss to your car due to the following:

Natural disasters such as floods, earthquakes, typhoons, hurricanes, storms, hailstorms, frost, inundation, self -Ignition, lightning, cyclone, etc.

Artificial disasters such as strikes, vandalism, protest, riots, and terror attacks

Theft or malicious acts or fire.

What’s Not Covered In The Own Damage Insurance Policy?

Though an Own Damage insurance policy is excellent for your car’s protection, few things are not covered in the policy. These include:

Third-Party Liabilities

Own Damage Insurance policy is a standalone policy and, as such, will not cover your third-party liabilities. Your third-party auto insurance policy will instead take care of the same.

Drunk Driving

DUI or also known as Driving Under Influence (of alcohol), is against the law. Therefore, the Own Damage insurance policy does not cover claims for driving under the influence of alcohol.

Driving Without A Driver Licence

No insurance company will accept claims if you’re driving without a driver’s license. So, you can only file claims if you are driving with a valid driver’s license; as such, Own Damage insurance policy will not cover claims if you’re going without a valid driver’s license. Others include:

Consequential Damages

Contributory Negligence

Driving without a Licence Holder

Wear and tear and depreciation

Not having a valid driving license

Mechanical or electrical breakdowns, failures, or breakages

Contractual liability

How Protected Are You In Your Damage Policy?

The amount that your insurer pays you for an own damage claim depends on your car’s Insured Declared Value, the deductibles you opted for, and the make/model of your vehicle.