Learning Center

Motor Insurance

What is Motor Insurance?

Motor insurance (also known as vehicle / car / auto insurance) is insurance purchased for cars, trucks, and other road vehicles. Its primary objective is to provide protection against physical damage resulting from traffic collisions and against liability that could also arise there-from.

Motor insurance in India covers for the loss or damage caused to the automobile or its parts due to natural and man-made calamities. It provides accident cover for individual owners of the vehicle while driving and also for passengers and third party legal liability.

Why Motor Insurance?

  • Motor Insurance(Third Party) is compulsory on purchase of new vehicles whether acquired for commercial or private usage as per Motor Vehicle Act in India. One can be penalised for driving without a valid cover.
  • An accident can happen to anyone even if the driver of the car is not at fault. This may result into a lot of damages caused in person as well as to the car. Motor Insurance turns to be very beneficial under such circumstances.
  • If the driver is liable for an accident which results in bodily injuries to a third party, then the expenses have to be borne by the owner of the car. In such a case third party motor insurance saves from a devastating financial blow.
  • Cars are an expensive investment for an individual. An accident can turn this investment into a huge loss as well. Hence it is important to have motor insurance.
  • It also helps to cover for damages caused other than an accident like fire, theft,etc.

What is covered in Motor Insurance?

Motor Insurance covers :

  • Accident caused by external means.
  • Man made calamities, such as Explosion, Burglary, Theft, Riots & Strikes,Malicious Acts, Terrorism, etc
  • Natural calamities like Earthquakes, Fire, Floods, Typhoons, Hurricanes, Storms, Cyclones, Lightning,etc.
  • While in Transit by rail/road, air or waterway.
  • Third party legal liability
  • Cover for an owner driver in case of death

What is not covered in Motor Insurance?

  • Normal wear and tear of the vehicle due to usage
  • Loss or damage due to depreciation of vehicle
  • Electrical / Mechanical breakdown
  • Wear and tear of consumables like tires and tubes
  • Loss or damage incurred outside the geographical area
  • Loss or damage caused as result of driving under intoxication (DUI) (alcohol/drugs)
  • Loss or damage caused to the vehicle by a unauthorized person without valid driving license
  • Loss or damage due to nuclear risks
  • Vehicle being used otherwise than in accordance with restrictions as to use.
  • Loss/Damage attributable to War/Mutiny/Nuclear risks
  • Damages caused due to speed testing/ racing
  • Known or deliberate accidental damage

These may vary from insurer to insurer.

Types of motor insurance available in the market:

Car Insurance policy can be broadly classified as follows:

  • Private Car Insurance : It is compulsory for all the new cars to have a motor-car insurance. It is insurance for vehicles not used for commercial purposes. The amount of premium depends on the make and value of the car, state where the car is registered and the year of manufacture.
  • Two Wheeler Insurance : It covers accidental insurance for the drivers of the Two wheeler vehicle.
  • Commercial Vehicle Insurance : It provides cover for all the vehicles which are not used for personal purposes, goods carrying vehicles like the Trucks, Tempos and HMVs.
  • Third Party Insurance Policy: This type of policy only covers the third person who has been damaged or injured in an accident where the owner is accountable. It covers the insured person's liability to third parties' loss caused by an accident involving the auto vehicle of the insured. This refers to the minimum risks that are to be covered under the Auto Vehicles Act 1938 (Act Liability). It doesn't cover the expenses, damage, theft or injuries of the owner. This type of plan is made compulsory by the law of India.
  • Comprehensive Insurance Policy: This type of plan has a wider scope and covers all the above mentioned liability along with the insured person's damage, theft, expenses and injuries in result of an accident of the auto vehicle. This type of policy can be extended to increase benefits as an additional feature.
  • Liability only policy: It covers third party liability for bodily injuries and/or death and property damage. Personal accident cover for owner driver is also included.

Important Terms:

  • NCB(No Claim Bonus): No claim bonus is a special discount given for every claim-free year. This therefore reduces the premium in succeeding years. It can be accumulated over a period of insurance. NCB starts with 20% and goes up to 50%. In case of claim, NCB becomes nil. The NCB accumulated on an old car can be transferred on a new car.
  • IDV : IDV means Insured's Declared Value. It is the value of the vehicle, which is arrived at by adjusting the current manufacturer's listed selling price of the vehicle with depreciation percentage as prescribed in the Tariff.
  • Roll over cases : When an individual, shifts his insurance premiums from one insurance company to another, then it is known as roll over.
  • Road side assistance :Roadside Assistance provides additional services such as towing, flat tire change, locksmith service and battery jump-start to customers. This service can be opted for by paying an extra premium if it is not included with the existing insurance policy.
  • Voluntary deductible : Deductible is the portion of the claim that an individual has to bare and is not paid by the insurance company. Voluntary deductible is the amount the insured is ready to bare in case a claim is made. It is an out of pocket expense. Higher discounts on premiums are given to individuals for choosing higher deductibles.
  • Total loss : When damage is caused to an automobile to such a great extent, that the repair costs are higher than the depreciated value of the vehicle or even if it is stolen, then it is termed as total loss.
  • Partial loss : The repairable losses occurred due to an insurable cause are known as partial losses. Thefts of certain parts or accessories are also termed as partial loss. Accessories are covered only in private cars.