What is Motor Insurance?

Motor insurance (also known as vehicle/car/auto insurance) is insurance for cars, trucks, and other road vehicles. It provides protection against physical damage and liabilities resulting from traffic collisions. Motor insurance in India covers for the loss or damage caused to the automobile or its parts due to natural or man-made calamities. It provides accident cover for individual owners of the vehicle while driving and also for passengers and third party legal liabilities.

Why is Motor Insurance needed?

• An accident can happen to anyone even if the driver of the car is not at fault. This may cause a lot of damages to the person as well as the car. Motor Insurance turns out to be very useful under such circumstances.
• Cars are expensive investments for individuals, but accidents can turn these investments into huge losses as well. Hence it is important to have Motor Insurance.
• As per the Motor Vehicle Act in India, Motor Insurance (Third Party) is compulsory on purchase of new vehicles, whether bought for commercial or private usage. Driving without a valid insurance is punishable.
• If the driver is liable for an accident which results in bodily injuries to a third party, then the expenses have to be paid by the owner of the car. In such cases, Third Party Motor Insurance saves them from a devastating financial blow.
• Motor Insurance also helps cover for damages that are caused by calamities other than accidents.

What does Motor Insurance cover?

• Accidents caused by external means.
• Man made calamities, such as explosions, burglary, theft, riots, strikes, malicious acts, terrorism, etc.
• Natural calamities like earthquakes, fire, floods, storms, cyclones, lightning, etc.
• Damages while in Transit by rail/road, air or waterway.
• Third party legal liabilities.
• Death of owner driver.

What does Motor Insurance not cover?

• 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 DUI (driving under intoxication – alcohol/drugs)
• Loss or damage caused to the vehicle by an unauthorised person without valid driving license.
• Loss or damage due to nuclear risks.
• Vehicle being used otherwise than in accordance with restrictions.
• 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 policies:

• Private Car Insurance : Private Car Insurance covers for vehicles which are used for personal purposes. The premium for the car depends on the state where it is registered, its make and value, and its year of manufacture.
• Two Wheeler Insurance : Two Wheeler Insurance insures the drivers of two wheeler vehicles in case of accidents.
• Commercial Vehicle Insurance : Commercial Vehicle Insurance provides cover for vehicles which are used for commercial purposes, such as Tempos, Heavy Motor Vehicles and goods carrying vehicles like trucks.
• Third Party Insurance : The Third Party Insurance policy covers the insured’s liability to the third parties’ loss caused by injuries from an accident where the owner is held accountable. 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 Indian law.
• Comprehensive Insurance : Comprehensive Insurance policies have a wider scope and cover all of the above mentioned liabilities, as well as the insured’s expenses in result of an accident of the vehicle, such as theft, damage and injuries. As an additional feature, this type of policy can be extended to increase benefits.
• Liability only : The Liability only policy covers the personal accident cover for owner driver and any third party liabilities for property damage, bodily injuries and/or death.

Important Terms:

• NCB(No Claim Bonus) : For every claim-free year No Claim Bonus is a special discount given. This helps to reduce the premium. NCB can be accumulated over a period of insurance and it starts with 20% and goes up to 50%. In case of claim, NCB becomes nil. The owner of the vehicle, can use the NCB accumulated on an old car by transferring to a new car.
• IDV (Insured’s Declared Value): The Insured’s Declared Value is the value of a vehicle derived from the current manufacturer’s listed selling price of the vehicle being adjusted with the depreciation percentage as prescribed in the Tariff.
• Roll over cases : A roll over case is when an individual shifts their insurance premiums from one insurance company to another.
• Roadside Assistance : Roadside Assistance provides additional services to customers, such as towing, flat tire change, locksmith service and battery jump-start. This service can be opted for by paying an extra premium if it is not included with the existing insurance policy.
• Voluntary deductible : A deductible is the portion of a claim that an individual has to bare and is not paid by the insurance company. The 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 : The total loss of ____ is when the vehicle gets stolen, or when extreme damages cause the repair costs to be higher than the depreciated value of the vehicle.
• Partial loss : Partial losses are the repairable losses due to an insurable cause. Thefts of certain parts or accessories are also known as partial losses, though accessories are only covered in private cars.