An auto insurance policy is a financial protection tool for your vehicle. With the increase in incidents of theft, accidents and normal wear and tear to which motor vehicles are subjected, it is important for you to purchase an adequate auto insurance policy. In India, a basic auto insurance policy is also required by law.
To purchase an auto insurance policy, you need to be aware of the different types of insurance policies, the factors affecting premiums, and the various add-ons, exclusions and inclusions.
Types of auto insurance
The types of auto insurance policies are primarily classified according to the scope of coverage and the type of vehicle for which the insurance is requested.
Scope of coverage
- Liability insurance: Liability insurance is the most basic and common type of auto insurance. It is also called liability insurance or action plan only. In addition, the Motor Vehicles Act, 1988 made it compulsory for all vehicle owners to take out a third party insurance policy. Driving a car without this policy may result in penalties. The policy only covers damage and loss caused to a third party, vehicle or property.
- Multi-risk automobile insurance: As the name suggests, an all-risk insurance policy has broad coverage. It covers both civil liability and damage to your own vehicle. Although the maximum amount of coverage for injury / death under this policy is unlimited, there is a cap of Rs 7.5 lakh on coverage for third party property damage.
In the case of third party liability coverage, it will protect you from legal liability to a third party in the event of accidental injury / death or property damage. In the case of personal damage coverage, the policy will protect the insured vehicle in the event of accidental damage, theft and damage suffered as a result of natural disasters.
Vehicle type
- Insurance policy for a private car: A comprehensive auto insurance policy has broad coverage and protects the owner against the costs associated with damage caused by accidents, natural disasters, and loss due to theft. At the very least, all car owners should take out liability insurance, as this has been made mandatory by the government. Such coverage ensures that the car owner is covered for damage and injury caused to a third party.
- Insurance policy for a two-wheeler: Similar to third party insurance which is compulsory for car owners in India, all two wheeler owners are required to carry a two wheeler insurance policy. It covers the owner not only against damage caused to himself as a result of accidents, disasters, fire, theft, etc., but also against damage and injury caused to a third party.
- Insurance policy for a commercial vehicle: As the name suggests, this type of insurance coverage is intended for vehicles for non-personal or commercial use. Examples of utility vehicles that fall within its purview include heavy and light utility vehicles, trucks, buses, multi-utility vehicles, agricultural vehicles, etc.
Supplementary automobile insurance plans
Each individual has unique requirements and expectations, and a basic auto insurance plan may not cover these requirements. In such cases, you can opt for auto insurance add-ons, also known as auto insurance endorsements. These additional coverages can boost your base policy by expanding its coverage and are available at a nominal premium. Some of the common jumpers that are offered include:
- Zero amortization cover: Zero amortization coverage, also known as zero amortization coverage, can result in significant savings at the time of loss. It is well known that as soon as a car leaves the showroom, its value begins to depreciate. So when you file a claim, all costs related to depreciation should be borne personally by you. In such a situation, zero amortization coverage can come to your rescue. If you purchase a policy that has the added layer of zero depreciation coverage, the insurer will cover the expenses related to depreciation of the vehicle and its parts.
- No Claims Bonus (NCB) Protective Coverage: A no-claims bonus is basically a discount you can get when renewing your auto insurance policy. People who do not make a claim during the term of the policy are eligible for a no claims bonus. However, with no-claims bonus protection coverage, you can keep this bonus even after you have made a claim during the term of the policy.
- Motor protection cover: A comprehensive, self-contained auto insurance plan will not cover the cost of repairing engine damage. By purchasing an engine protection cover, you can cover the cost of protecting your car’s engine. This add-on is particularly relevant for people who reside in areas prone to congestion.
- Return to Invoice Coverage (RTI): Auto theft is a major problem that is prevalent in most parts of the country. In the event of car theft, full coverage will reimburse the value of the car but may not cover the cost of total loss. It is important to note that RTI coverage does not take depreciation into account and therefore covers the true value of your vehicle’s invoice.
- The loss of personal effects guarantee: An auto insurance policy will cover damage to the vehicle and its parts. However, it will not cover the loss of expensive electronic items such as cell phones, laptops, etc., which may be in the vehicle at the time the damage or loss occurred. The loss of additional personal coverage will also cover these items.
- Personal accident cover for passengers: While a comprehensive auto insurance policy will cover the owner or driver, it does not provide protection for passengers. Therefore, you should consider this addition to extend personal accident coverage to passengers as well.
- Consumables cover: From a vehicle’s perspective, individual vehicle components, engine oil, windshield washers, among others, are collectively considered consumables. Although they are part of the vehicle, the cost of covering these components is beyond the purview of the insurance company. If you purchase the additional consumables, their cost will be covered by the insurance company.
In addition to the above, there are several other add-ons that you can purchase. For example, you can take out daily allowance coverage that will reimburse you for travel expenses while your vehicle is being repaired. Or you can purchase key replacement coverage which will ensure that the cost of replacing the vehicle keys is reimbursed by the insurance company. You can also purchase roadside assistance coverage that gives you 24/7 protection in the event of a puncture, fuel exhaustion, breakdown, etc.
Auto insurance premiums
The type of insurance policy you purchase and the coverage you choose is dictated by the premium you have to pay. So, it is important that you understand the factors that impact auto insurance premiums and how you can reduce your premium expenses without compromising the suitability of the auto insurance policy.
- Type of cover: The premium paid for a comprehensive auto insurance policy that covers both the insured vehicle and a third party will be relatively higher than the premium attached to a third party auto insurance policy.
- Vehicle Safety Features: An auto insurance policy covers the cost of damage from accidents and other events that could damage your car. If your motor vehicle is equipped with additional safety devices such as anti-theft devices, airbags, GPS tracking system, etc., the damage caused by accidents is likely to be less. In some cases, certain features can also help prevent accidents. Therefore, motor vehicles with such safety features are likely to attract lower premiums.
- Location: Your place of residence, or more precisely the place where your vehicle is and is used, is one of the main factors impacting your car insurance premium. Here it is important to note that insurance companies consider subways to be riskier than small towns. This perspective stems from the conviction that the risks of vandalism and accidents are higher in subways than in level II and III cities. Therefore, if you live in a metropolitan city, it is likely that you will pay a higher premium on your auto insurance policy.
- Changes: If you have made any incidental modifications to your motor vehicle, like installing alloy rims, roof racks, etc., chances are you will have to pay a higher premium in order to get them covered by the car company. ‘insurance.
- No claim bonus: A PNE is a discount on the premium offered by the insurance company for not having made a claim in the previous year or during the term of the policy. So, it might be wise to avoid making a claim for small damages like a broken lock or wiper repairs.
- Age: Your age can play a vital role in determining the premium you pay for your auto insurance policy. It is widely believed that with age comes more experience. As a result, younger drivers may have to pay higher premiums than older, more experienced drivers.
Final result
For a decision to be fair, it is important that it be informed. Undoubtedly, it is important for you to take out an auto insurance policy in order to protect your assets and minimize financial expenses in the event of damage, accidents and losses. However, in order to truly benefit from the policy, you need to make sure that the auto insurance policy you purchase is adequate and broadly meets all of your requirements.