All about car insurance

Are you planning to buy a car? Then, along with the time you devote to reading reviews and test-driving cars, check out how best to insure the vehicle.



If the vehicle is under-insured or if you haven't gone through the document to understand hidden clauses, it will pinch you at the wrong time. IDV (the Insured's Declared Value), deductibles (compulsory and voluntary) and NCB (No-Claim Bonus) are a few things that can add to or reduce the expenses you will incur from your pocket when the vehicle is damaged. It pays to know what these terms mean.

Get the basics

Where a liability-only policy is a must, buying a package policy is an option. A liability-only policy covers bodily injury or death of a third party, damage to third party's property and life of the driver. Under a package policy, one also gets a cover for the vehicle that is insured with the third-party liability cover.

While your car dealer will already have tie ups with insurance agencies, you can also choose from one of the several general insurers.

You can even buy policies online. Don't, however, expect discounts on premium when you buy online.

The cover given for third-party property damage and personal accident is fixed according to the rules of the India Motor Tariff of the Tariff Advisory Committee. It comes to Rs 7.5 lakh for damage of third-party vehicle and Rs 2 lakh for the life of the owner or driver of the car. The cover for the third-party's life or his bodily injury is unlimited; the settlement amount as decided by the court is paid by the insurer.

Premium

The premium for the insured vehicle is split between own damage premium and liability premium. The liability premium doesn't vary much between insurers and remains fixed during the life of the vehicle. A car's cubic capacity (engine capacity), however, brings about slight variations in the cost for the buyer. Higher the car's cc, higher the premium.

In a package policy, the liability premium is only a small percentage of the total premium. Here, much of the premium paid goes towards covering the insured vehicle. For example, under a package policy of National Insurance Company, a three-year-old Maruti Alto (796 cc) will require around Rs 7,300 as premium (service tax additional), split as Rs 6,500 for own damage and Rs 800 for liability.

The premium paid for own damage cover is determined by the IDV, which is the value of the vehicle determined by deducting the depreciation from the car's showroom price. Based on the IDV, the insurer computes the premium. The premium for small cars is around 3 per cent of the IDV. If you opt for some add-on covers, premium cost will go up.

Discounts on premium

When an insurer promises you discounts on the premium, ask under what heads they fall. There are some statutory deductions under the India Motor Tariff. Discounts on own damage premium can fall under mandatory discounts, voluntary deductibles and no-claim bonus.

The Indian Motor Tariff says that insurers should offer discounts if the insured is a member of recognised automobile associations. Some discount is allowed if the car has an approved anti-theft device. Vintage cars and cars owned by handicapped people also get discounts.

If you agree to share some portion of the loss on damage of the vehicle, the insurer may offer you some discount. These are called voluntary deductibles. Higher the amount you are willing to share, higher the discount. Some insurers compulsorily deduct Rs 500 or more from the claim they pay. This is called compulsory deductibles.

No-claim bonus is the reward for the driver for driving safe. If there is no claim from the insured for, say, one year, the insured is eligible for a 20 per cent discount on subsequent premium. This discount rises to 50 per cent if there has been no claim for five continuous years. Some insurers make tall claims on the discounts they offer; the buyer needs to be aware of the mandatory discounts and see if the insurer is tweaking the IDV.