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What is car insurance and why does one need it Research Team | Updated On Thursday, May 10,2018, 10:23 AM

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What is car insurance and why does one need it



What is car insurance?
In simple terms Car insurance is the protection provided by the insurance companies for the loss against third party liabilities, theft or damage to the car.
Policy coverage
The insurance covers the insured for the loss arising due to:

​Natural Calamities - Fire, explosion, self-ignition, lightning, earthquake, flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost, landslide, rockslide

Man made: - Burglary, Theft, Riot & strike, Malicious act, Accident by external means, Any damage in transit by road, rail, inland waterway, lift, elevator or air.
Parties in car insurance
Insured: - Owner of the vehicle
Insurer: - The insurance company
Types of car insurance


Third party car insurance
It gives protection against the claims arising due to damages caused by accidents, permanent injury/death, of a person and also any other damage caused to the property.
Comprehensive car insurance policy
Comprehensive policy includes both Third party liabilities and also loss/damage caused to the vehicle by way of accident, theft or any other dangers.
Thus the insured will be reimbursed for the loss/damage to his/her vehicle in the following cases:-
  • By fire, explosion, self ignition or lightning
  • By burglary, housebreaking or theft
  • By riot & strike
  • By earthquake
  • By flood, typhoon, hurricane, storm, tempest, inundation, cyclone
  • By accidental external means
  • By malicious act
  • By terrorist activity
  • Whilst in transit by road, rail, inland-waterway, lift, elevator or air
  • By land slide, rockslide


Vehicle valuation
Now the question arises for what value should the car be insured – for the depreciated value or reinstated value. However car need not be insured for any of the above two, it is insured for second hand value in the local market for the similar car and similar model.
Factors determining premium
  • Cubic capacity
  • Year of the car
  • Geographic location
  • Value of the car proposed
  • Cost of the car
  • Age of the driver/buyer
  • Marital status
  • Sex


Reimbursement in event of an accident
In case of an accident the company will repay for the cost of damaged parts which are to be replaced and also the cost of labor. However as per the regulations the company pays certain percentage of the product price and not the whole amount.
The reimbursement on parts is subject to the following amount of depreciation
For all rubber/nylon/plastic parts
For fiber glass components
For all parts made of glass
 For all other parts


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However the company will not be liable to pay in respect of following cases:-
  • Consequential loss, depreciation, wear and tear, mechanical or electrical breakdown, failures or breakages
  • Damage to tyre and tubes unless the vehicle is damaged at the same time, in which case the liability of the company shall be limited to 50 per cent of the cost of replacement
  • Any accidental loss or damage suffered whist the insured or any person driving the vehicle under the influence of intoxicating liquor or drugs
Personal accident covers for owner driver
Due to bodily injury/death sustained by the owner-driver of the vehicle by violent accidental external and visible means which independent of any other cause shall within six calendar months of such injury results in.


In case of accidents insurance companies do not pay 100% of the expenses, certain amount has to be borne by the insured; the amount borne by the insured is known as deductible. For instance there is a loss of Rs.2000 and the deductible payable by the insured is Rs.500 than the amount payable by the insurance company is Rs.1500. Choosing a deductible is an important part of insurance because this is the cost which the insured has to bear in case of any damage or loss taking place.
Ways to reduce premiums
There are some ways by which premium amount can be reduced by a certain extent:-
  • A person can opt for a car that looks good to insurance companies. Generally insurance companies are aware of which type of cars are prone to frequent problems, which are most stolen. The car which does not figure in this list can be bought or the one which has a least risk weightage can be opted for.
  • Generally if a person has more than one car insured and has a record of accident free driving than in this case too premiums charged will be less.
  • By choosing a higher deductible


Documents required for car insurance


  • Drivers license
  • RC book
  • Address proof


Companies providing car insurance
  • Oriental Insurance company
  • New India Insurance company
  • HDFC
  • ICICI Lombard
  • Reliance
  • United India Insurance
  • TATA AIG, etc.


Information needed before applying for insurance
  • Car make and model
  • Registration number
  • Number of years of no-claims discount and with whom
  • Where the car is normally kept - street, garage, etc.
  • Details of other drivers - name, date of birth, license
  • What the car will be used for –personal or business
  • Estimated annual mileage
  • Type of cover – comprehensive or third party
  • Full details of claims or convictions in the last three years.


Steps taken for applying for insurance
  • Lookout for financially sound insurance company
  • Decide on the coverage to be taken
  • Getting the premium rates from different companies
  • Accessibility of the insurer
  • Premium payment options available
  • Receiving the quotes, coverage and deductibles
  • Choosing the right insurance company after deciding on the above parameters
  • Reviewing the policy document


Choosing an auto insurance company
The first step in choosing the right auto insurance company is to decide on the type of auto insurance required. Then one also need to look out if the company gives any discount if a person owns more than one vehicle, since it would be beneficial for both the client as well as the company by transferring all the auto insurance under one company’s product. Another step which can be considered is whether the company rewards the driver for having a good driving record by giving any discounts. Also the person needs to go through the policy document in order to have a better understanding of the insurance product. Also the insurance rates vary from location to location; rates are high in urban areas as compared to those in rural areas or town


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