How Car Insurance Works?
Insurance is considered an investment. In India, regardless of whether it is a commercial or personal vehicle, car insurance is mandatory. To know how does car insurance work, it is important to the know different car insurance policies available. There are two kinds of plans.
1) Third-party liability policy
As per the Motor Vehicles Act, this policy is a legal requirement. By way of this policy, only the damages to a third-party would be provided for. This policy would not compensate for the damages to the insured vehicle. This type of policy will suit those who are scouting for a car insurance policy for a low premium amount
2) Comprehensive Policy
As the name suggests, this policy provides all-round coverage, ranging from third-party coverage to coverage of damages to the car due to natural calamities. This type of policy reduces the financial liabilities in the event of an accident.
While car insurance policies available in the market differ slightly differ from one another in their features, there are certain common elements. These common features can help understand how car insurance works. The standard coverages, which are typically provided in a comprehensive vehicle insurance policy, include: –
- Unfortunate death of the driver of the insured vehicle, and/or passengers present at the time of event
- Damages suffered either due to an accident or theft or due to natural calamities
- Damages to be paid to third-party which was involved in an accident with the insured vehicle
- Any bodily injury caused to individuals by way of the accident
There are, however, certain exclusions in place
- If the car was damaged while being used for purposes other than what was mentioned in the policy
- Any issues related to the vehicle due to general depreciation of the car
- Consequential loss
- Mechanical breakdown of the car
- Usually, polices do not compensate for damages suffered outside the geographical location
- If at the time of the contingent event, the person was found to be driving without a license
- If at the time of the contingent event, the driver was under the influence of abusive substances such as alcohol, drugs etc.
How vehicle insurance works is primarily dependent on the insurance company offering the policy. To avail the future coverage through an insurance company, the investment one makes today is by way of paying premiums. The Insurance Regulatory and Development Authority of India (IRDAI) has set the premium for Third-Party Liability policy. However, for the purpose of a comprehensive policy, insurers consider a lot of factors before finalising the insurance premium. Some of the factors which play a key role in deciding the premium of a car insurance policy are as follows –
- Insured Declared Value or IDV is the market value of the car. This value is reflective of the Face Value. IDV Value can be chosen from a range, as provided by the insurance company, and has a direct relation with the premium amount. The higher the IDV chosen, the higher the premium amount.
- There are certain add-on or riders which could be added to your base car insurance policy, to boost its coverage. Passenger cover, roadside assistance cover and engine protection cover are some popular add-ons.
- Details of the driver who would be operating the insured vehicle influences the car insurance premiums. For example, if there are multiple people handling the same vehicle, premiums would naturally be higher.
- Lastly, there are vehicle-related factors which are looked into while determining the premium. Usually, diesel cars would carry a higher premium as compared to cars running on petrol.
In a third-party liability policy, a third-party would claim damages against the policyholder through registering a First Information Report and then it would be decided upon in the Motor Claims Tribunal. However, in a comprehensive policy, the policyholder will contact the insurance company on his own. The insurance company would call for an investigation to ensure the claims are justified and compensate accordingly.
There are plenty of car insurance companies. All of them offer online provisions to buy policies. You just need to pick the one that suits you the best and make the payment.
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.