If you own a car and use it for your daily commute, you need to buy car insurance. This has been mandated by the law in India. But what you should understand is the amount of car insurance you actually need to be safe on the roads.
You could stay on the safe side of the law and opt for the bare minimum level of car insurance, i.e., the third-party liability insurance. On the other hand, you can also make a prudent insurance purchase decision by opting for a comprehensive package that offers you extensive coverage.
Motor insurance companies today offer a wide range of products, such as limited cover, extensive cover, and add-on covers. If you buy a comprehensive car insurance policy, you can mix and match the add-on covers to suit your specific needs. Irrespective of whether you are a teenager with a brand new driving license or a travel enthusiast who embarks on long drives every weekend, there is a car insurance policy for your requirements.
But since car insurance policy brochures are filled with technical jargons, the process of deciding on an appropriate insurance plan may be daunting. Here, we try to unravel the complications in the fine print, so that you can make a judicious decision at the time of insurance purchase.
Understanding Car Insurance
Car insurance policies can be broadly classified into two main types:
- Third-party liability insurance - This plan is also referred to as liability-only policy or act-only insurance. It offers a minimal level of insurance coverage, specifically for the liabilities to third parties in an accident. It covers third-party injuries, death, or property damage. The liability-only cover does not protect the insured vehicle itself. This also happens to be the most basic level of car insurance mandated by the Motor Vehicles Act.
Comprehensive car insurance - The comprehensive car insurance plan has more elaborate coverage. The plan offers third-party liability insurance and own-damage cover. Own-damage cover includes the losses incurred by the policyholder from the following events:
- Car theft
- Damages due to external accidents
- Damages while in transit via rail, waterways, road, lift, air, etc.
- Damages to the car due to natural calamities such as floods, hurricanes, typhoons, etc.
- Damages from man-made disasters, such as strikes, riots, vandalism, etc.
- Accidental injuries or death of the owner-driver
The comprehensive car insurance policy can be enhanced by opting for add-on covers. The policyholder will have to pay extra premium for buying add-on covers.
All claims related to third-party liabilities will be settled in the Motor Accident Claims Tribunal (MACT) and is a long-winded process.
How Is The Premium Decided?
Most insurance companies determine the premium for your car insurance based on the following categories of risks:
- Risks related to the vehicle - This includes model and make of the vehicle, cubic capacity, fuel type, etc. Diesel vehicles have higher premiums than petrol cars. SUVs and commercial vehicles are also charged higher premiums. The age of the vehicle and its IDV at the time of renewal are also key factors that influence the premium.
- Risks related to the owner-driver - The profession and age of the driver influences the premium.
- Risks associated with location - The area of registration has a bearing on the car insurance premium. Premiums are usually high for localities that are densely populated and near the highways. If you live in an area prone to thefts, you are likely to pay a higher premium.
- Risks associated with claims history - Raising a car insurance claim can lead to higher premiums the following year.
How To Reduce Car Insurance Premium
You can bring down your car insurance premium to a certain extent by following these valuable tips:
- Preserve your No Claim Bonus - Car insurance companies offer No Claim Bonus (NCB) to drivers who do not raise any claims in a policy year. The bonus accrued this way can provide you a premium discount of up to 50% at the end of 5 claim-free years. This is a very attractive benefit and you should look to preserve the NCB by refraining from raising claims for small damages. If you are shifting insurers, you can get an NCB retention certificate and transfer the accumulated bonus to your new insurance policy.
- Opt for voluntary deductibles - A voluntary deductible is an amount that you agree to pay at the time of a car insurance claim. This is decided at the time of policy purchase. Opting for higher voluntary deductibles can bring down your motor insurance premium. But exercise caution while stating extremely high values as you will have to pay the promised amount at the taxing time of a claim.
- Install security devices - If your vehicle is installed with a security device approved by the Automotive Research Association of India (ARAI), you will receive a discount on car insurance premium. This is because such vehicles have a good security system and are hence, less prone to thefts.
Where Can You Buy Car Insurance From?
- You can purchase car insurance policies directly from the websites of insurance companies. Most insurers offer this facility free of additional costs.
- You can also approach third-party financial websites that offer you the benefits of easy policy comparison and purchase. The advantage of approaching such neutral websites is the fact that you will be able to tally the insurance coverage against the premium for policies offered by several insurers on one platform. The entire policy purchase journey is also effortless and you stand to benefit from the guidance of customer service representatives throughout the process.
- Another way in which you can buy motor insurance is the offline mode. You can approach the office of the insurance company or get in touch with insurance agents for the same.
- The car dealership from where you purchase the vehicle will have tie-ups with insurance companies. You can buy insurance through the dealership at the time of vehicle purchase.
It is advisable to buy insurance online, as you stand to benefit from various offers and discounts. Insurance companies gain from online policy sales as the distribution and processing costs are minimised to a large extent this way. They, in turn, pass on these benefits to customers in the form of premium discounts.
Points To Note When Buying Insurance
When you are looking to purchase car insurance, there are certain things you need to keep in mind so as to receive the most optimum coverage:
- Value of the Vehicle - When insurance companies offer discounts on car insurance policies, they may do so at the expense of reducing the Insured Declared Value (IDV) of your vehicle. You should be cautious about this because in the event of an accident the amount you receive as claim payout will be substantially low. Hence, you should look to choose an insurance plan that offers maximum IDV, even if you are required to pay a higher premium.
- Policy Lapsation - In case the car insurance lapses, the insurance company will offer you a grace period of about a week. You are required to pay the complete premium within this time. In case you are unable to do so, you run the risk of driving a vehicle that is uninsured. This is an offence that is punishable by law. Letting your car insurance lapse also leads to loss of other benefits such as car insurance discounts, lower premiums, bonuses, etc. So, remember to renew your policy on time; you can also set reminders for the same.
Insurer’s Business History - It is a good practise to check the claim settlement history of the insurance company you are planning to choose.
- Check the premium they offer for your motor insurance and the availability of essential add-on covers. The personal accident cover and roadside assistance facility are invaluable add-on covers that you can buy with your comprehensive policy.
- You should also check the financial standing and reputation of the insurer before making a purchase decision. You can go online and read the reviews posted by customers and also stay abreast with financial news for this purpose.
- One important thing to check is the availability of cashless garage facility. This is a very useful service and should be opted for as much as possible.
- Check the customer service offered by the insurance company. Assessing the responsiveness of the insurer to issues and queries is a very important step.
- Policy Documentation - It is crucial to read through your policy documentation in an exhaustive manner, as this will equip you better to face a claim scenario. Pay close attention to the exclusions in the car insurance policy, so that there are no surprises when you actually raise a claim.
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GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017