How many types of car insurance are in India,What is Car Insurance?

Posted by sanjay on January 5th, 2017

Vehicle Insurance also known as auto insurance, is insurance purchased for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise from there.  In India (unlike the USA), car insurance policies insures the vehicle and not the owner or driver. So, God forbid, if you or anyone driving your car meets with a fatal accident, then the insurance company will pay compensation only for the car.

There are two types of car insurance in India

Third party policy: insures damages to life or property of a third party due to your vehicle. This is a mandatory cover, under the Motor Vehicles Act 1988, without which you can’t take your car or vehicle on the road.

Comprehensive or package policy: it covers any damages to you, your co-passengers and your vehicle in addition to third party as a result of natural and man-made calamities. Also known as package policy, this cover also includes damages to a third party.

Natural calamities are fire, explosion, lightning, flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost, landslide, rockslide, and fire and shock damage due to earthquake.

Man-made calamities are housebreaking,   burglary, theft, riot or strike, accident by external means, malicious act, terrorist activity and damage during travel by road, rail, inland-waterway, or air

Why Third party insurance is called so?

An insurance policy is between two parties, the insurer and the insured. Therefore, a third party is any person who is neither the insured nor the insurer. Third parties are mainly pedestrians, occupant of other vehicles, outsiders other than passengers.  It includes liability for death or injury to third parties. Damage to third party property is also included. However this insurance doesn’t protect you against losses which arise due to bodily injury or death to you, your vehicle and co-passengers.

What does car insurance not cover?

Car Insurance doesn’t cover

  • Normal wear and tear and general ageing of the vehicle.
  • Mechanical or electrical breakdown.
  • Damage to or by a person driving any vehicle or car without a valid licence.
  • Damage to or by a person driving the insured vehicle under the influence of drugs or liquor.
  • Loss or damage due to war, mutiny or nuclear risk.
  • Use of vehicle not in accordance with limitations as to use (eg. private car being used as a taxi)
  • Claims arising out of contractual liability.

So all the people in India get their vehicle insured?

Though motor insurance has been growing at a healthy pace, less than half of the total two-wheelers and taxis plying on Indian roads are insured. As of March 31, 2011, only 27 per cent of the registered two-wheelers, 29 per cent of registered taxis and 73 per cent private cars, were insured. This is despite the fact that third-party motor insurance (covering the liability of third party during accidents and other incidents) is mandatory in India. Ref Business Standard  General insurance penetration on the rise.

So how does car insurance work?

Car insurance policy is an annual contract that needs to get renewed every year. At the time of buying car insurance or renewing your policy, you would notice that the policy clearly states the time and date from which the cover is effective and the date and time on which the cover terminates. Usually, the cover starts from midnight.

So when your policy completes a year, you need to make sure that it is renewed before the expiration date. If you miss the deadline even by a day, your policy will have a break. This means that instead of renewing your policy, you will need to buy a policy afresh. This could mean a higher premium subsequently or rejection to offer insurance


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