What you need to know about car insurance

Motor vehicle insurance is a mandatory requirement by law, and so, just like vehicle registration, this expense needs to be borne by you, over and above the ex-showroom cost of the vehicle. However, in the case of insurance, there are many options that can vary the cost by a fair amount.

Also, different insurance companies charge different rates, so a little bit of cross-shopping could save you some cash. Do note, at the time of policy renewal you aren’t obligated to stick with the same company; so if you find a better policy, don’t hesitate to switch.

And then, of course, there’s the fine print. So here are a few things to remember when buying or renewing your insurance.

Insurance and its types

There are two basic types of insurance policies – Third-party and Comprehensive. The third-party cover only pays for the damage caused to an external party. For example, if your car collides with another car, the company will only pay for the damage caused to that vehicle. This can be a good option for older cars with extremely low value, as you are not saddled with a higher premium for a car that is worth only a few thousands.

Comprehensive insurance, on the other hand, will pay for damage to both cars. Naturally, the premium amount is higher, but the amounts from different companies can vary, depending on the variables picked, like cover against natural calamities like floods, earthquakes, or man-made calamities like vandalism. Here are a few important variables.

Zero Depreciation
The insurance company pays you the full value of the parts to be replaced and not a reduced value due to depreciation.

Engine Protector
Contrary to what some might think, a basic policy does not cover certain engine and electrical damage. Water ingestion, for instance, is not covered by normal insurance. Going for an engine and electrical damage add-on cover can protect you from expensive bills.

Roadside assistance
In case of a major accident, you can avail a taxi fare to the nearest city, and, if need be, even an overnight stay in a hotel.

Inconvenience allowance
Not having your vehicle can be inconvenient. This add-on pays for the period when your vehicle is undergoing repairs, on a per day basis.

IDV and Premium
Insured declared value (IDV) is the maximum amount to be paid by an insurer at the time of a claim. IDV usually drops by around 10 percent annually, on which your annual premium is calculated. You can choose to reduce this further and thereby lower the premium amount, but this can be counterproductive, as you will get a lower value for the car in the event of a total loss or write-off. The premium can be lower if, for instance, your car has an ARAI-approved anti-theft device, or if you are a member of certain automobile associations, or are a doctor or defence personnel.

No Claim Bonus
If you don’t make an insurance claim then you get what is called a No Claim Bonus (NCB) on renewal. The good bit is that the bonus adds up with each year of claim-free driving. For example, if no claim was made in the first year, then you are eligible to get around 20 percent off your next basic premium. If no claim is made for the next four consecutive years, the discount figure can go up to 50 percent. But keep in mind that NCB gets cancelled if a claim is made during a policy year or if the policy is not renewed within 90 days of the expiry.

Transferring NCB
NCB is attached to the policy holder and not the insurance company, so you can carry it over to a new car or another company too. For this, obtain an NCB certificate from your insurer when selling your older car and present this to the new insurer.

When to make an Insurance Claim
In certain cases, it’s better to not file a claim. For example, if another vehicle merely scrapes you car’s bumper in traffic, the cost of repainting it won’t be too high. So it’s better to pay for it yourself rather than lose your no claim bonus.

If the cost of repairing your vehicle is more than 75 percent of the Initial Declared Value (this varies from company to company), it will be declared a total loss or a write-off. However, to claim for a total loss, you need to transfer ownership of the car to the insurance company and submit all vehicle documents, like the original registration papers, duplicate keys and an NOC from the RTO.

Buying Car Insurance
There are various places from where you can purchase insurance, like from company agents, online and also the car dealer. Going with a car dealer is generally a hassle-free process as it's at the same place and they also have cashless tie-ups with individual workshops, meaning you don’t have to pay for repairs and then wait for a reimbursement. Of course, you can find better deals elsewhere, so do shop around. There are also websites that let you compare policies across companies. Do a bit of research and you could save a fair bit of money.