Types Of Car Insurance Coverage Explained

Just like you would not drive a car without wearing a seatbelt, it is best not to drive around without a suitable Car Insurance policy. In its simplest form, a Car Insurance policy is an arrangement with an insurer where you pay premiums in exchange for protection against certain vehicle-related damages. However, you should be aware of different types of Car Insurance policies, each with its own set of advantages and limitations. Understanding these can ensure you are in a good position when deciding which policy best suits your needs.

A Car Insurance policy provides financial coverage for costs arising from damages, theft or loss to your vehicle. While some types of insurance coverage are mandatory in India for all vehicle owners, opting for extensive protection may be a far better decision in the long run.

There are primarily two types of Car Insurance in India

• Third-Party Car Insurance
• Comprehensive Car Insurance (also called First-Party Car Insurance).

You can also choose additional coverage to enhance the benefits of these policies. Let's look at each one in detail.

It is the most basic and cheapest form of Car Insurance. Under Third Party Car Insurance, your insurer financially protects you if your vehicle ends up damaging a third-party property, and you are held legally liable for causing injuries or damage. Third parties here refer to vehicles, drivers, or passengers involved in an accident, excluding yourself.

Important to note:

All vehicles in India must have a minimum of a Third-Party Car Insurance policy under Section 146 of the Motor Vehicles Act, 1988. You are liable to pay certain penalties if you do not have such a policy. As per Section 196 of the Motor Vehicles Act, the penalty is ₹ 2,000 if caught driving without insurance for the first time. If you get caught a second time, the penalty increases to ₹4,000. You may also have to face imprisonment of up to three months. However, the penalties are subject to change, so it is important to stay updated on the same.

Coverage offered:

Third-Party Car Insurance covers the death, bodily injury, hospitalisation costs, damages, and permanent or partial disability to a third party in the event of an accident caused by you.Remember, this policy strictly covers third-party-related costs, meaning it will not compensate you for damages caused to yourself and your vehicle.

While Third Party Car Insurance does not cover damages caused to you or your vehicle in case of an accident, Comprehensive Car Insurance provides a much wider scope. Also known as First Party Insurance, it is a one-in-all policy covering various vehicle-related risks, including accidents, theft, natural disasters, fire, and third-party liabilities. The extensive coverage is the main reason a Comprehensive Car Insurance policy premium is usually higher.

Coverage offered:

First Party Car Insurance covers all third-party liabilities, personal accident damages, damages caused to your vehicle, and non-collision damages, such as those caused by storms, floods, fire, and theft.Another important feature of First Party Car Insurance is that you can improve coverage by selecting certain add-ons exclusive to this policy. You can enhance your base policy with add-ons by paying a slightly higher premium. These are some common add-ons you can include.

Personal Accident cover

Personal Accident Cover grants a payout to the owner-driver of the insured car in case of any major injuries when involved in an accident. It also covers permanent disability or death caused due to an accident.

Important to note:

A PA cover has become compulsory for all vehicle owners in India, and you must buy it regardless of whether you opt for First Party or Third-Party Car Insurance.

Zero Depreciation cover

If your vehicle is involved in an accident, your insurer considers a depreciation component when covering the costs associated with replacing or repairing your vehicle's parts. Depreciation is the decrease in the value of vehicle parts due to wear and tear over the years. As your car gets older, the depreciation costs can go higher.However, if you have a Zero Depreciation add-on, the insurance company will compensate you for vehicle damages without factoring in depreciation. This add-on is suitable for vehicles less than five years old.

Return to Invoice (RTI) cover

This cover helps protect you from loss in case your vehicle gets completely damaged or stolen.Let's understand this with an example. Suppose your car gets damaged beyond repair. Usually, the insurance company calculates your vehicle's Insured Declared Value , which is the market value of your car at the time it got damaged. The IDV may be lower than the invoice or Declared Value, especially as your vehicle ages and undergoes higher depreciation rates. If you do not have an RTI cover, the insurer settles the claim based on the IDV.However, if you have an RTI cover, you provide the insurance company with details of the invoice value of your car. Invoice value, the Declared Value, refers to the ex-showroom purchase price plus any taxes or other charges. In such a situation, the insurer will settle the claim based on the invoice value, not IDV.

Breakdown Assistance cover

In the event of a vehicle breakdown in the middle of a highway, it can be a difficult situation that could put you under a lot of duress. Your vehicle may get stuck on the road due to a flat tire, a low car battery, or an empty fuel tank. A Breakdown Assistance cover can help you overcome such worries. Your insurer provides you with immediate assistance in such situations. It can include towing services, re-fuelling to reach the nearest destination, etc.

NCB Protection cover

No Claim Bonus or NCB is a monetary reward your insurer may provide if you do not file a claim during a particular policy term. Insurers either lower your premiums as an incentive for policy renewal or provide additional cover. However, you may lose the accrued NCB benefits if you start applying for claims. To retain your NCB benefits even after making a claim, you can use the NCB Protection add-on cover.

Key Replacement cover

It is not uncommon for vehicle owners to lose or replace their keys. Sometimes, you may need an immediate replacement for your keys from the vehicle manufacturer, where the Key Replacement cover can help. This add-on covers the costs of replacing your insured vehicle's lost, damaged, or stolen keys. Also read: Difference between First Party and Third Party Motor Insurance?

This cover protects you from vehicle damage from a collision with an object or another vehicle. It is a great option to widen your coverage if you only have Third-Party Insurance. However, remember that this policy is for those with Third Party Insurance. The insurance company calculates the premiums for Collision Damage cover based on the vehicle's age and its Insured Declared Value.The policy covers damages to your vehicle sustained in a collision. It also covers vandalism-related damages, damages from falling items (such as trees or hail), and damages caused by mishaps like fire or weather-related disasters.

• Before buying Car Insurance, determine the scope of coverage you require. For this step, not only do you need to assess your individual needs, budget, and risk tolerance, but also the make and model of your car. For instance, you may need higher coverage if you own luxury or sports cars, as the costs for replacing their parts are typically higher than other vehicles.
• Your vehicle's Insured Declared Value (IDV) is an important component of determining the premium amount and the maximum coverage you can receive in case of a total loss or theft.
• Car Insurance protects you from any financial burdens arising from accidents, theft, etc. It also protects you from legal hassles if you damage another person's property.

• The first step is to provide your insurer with the details of the accident and the parties involved. If the accident has caused injuries or damages to a third party, you should ideally visit your local police station to file a First Information Report (FIR) immediately.
• Your insurance company will then send someone to assess the damage to your vehicle and the third party, if any.
• Next, you must submit the required documents supporting your claim. The common documents are a claim form, a copy of your driving license, and your vehicle's registration certificate (RC) . Attach a copy of the FIR in case of a third-party claim.
• Your insurer will assess the details of the accident and the damages. If the claim is approved by the insurer, you will receive a repair authorisation. The insurer will settle the claim directly with the network garage in case you have opted for a cashless facility. If you choose reimbursement, you can repair you car at a garage of your choice and later claim the expenses from the insurance company by submitting the repair bills and payment receipts.

• There are several types of Car Insurance policies, but the most common are Third-Party Car Insurance and First-Party Car Insurance (Comprehensive Car Insurance).
• Third-Party Car Insurance only covers damages and liabilities towards third parties involved in an accident.
• First-Party Car Insurance is an all-in-one policy that covers a wide range of vehicle-related risks.
• Collision coverage protects your vehicle against damages that result from collisions. It also covers costs associated with vandalism, falling items, fire, or weather-related disasters.
• Add-on covers are a great way to enhance your Car Insurance coverage affordably. All you need to do is pay a slightly higher premium amount.
• Popular examples of add-on covers include Zero Depreciation coverage, Return to Invoice (RTI) coverage, Breakdown Assistance cover, and key replacement cover.