Car Insurance Coverage

About Car Insurance Coverage

Car Insurance is an agreement that a car owner (or anyone with an insurable interest in a car) enters into with an insurer. Through the agreement the insurer pledges to provide financial protection against losses arising from any damages sustained to the car in a traffic collision and against any third-party liabilities arising from any incidents involving your car. Protection is also extended to losses resulting from theft of the car and damage sustained due to causes other than a traffic collision. In exchange, the insured is required to pay a premium to the insurer before the car insurance coverage commences.

The government of India mandates that every motor vehicle on public roads in India be covered by at least a third-party car insurance. Further, all drivers must also have a personal accident cover.

Insurance contracts are unilateral in nature. This means that only the insurer’s promises are legally enforceable. The insured can at any time decide to not pay the premium and the insurance cover would cease without any penalties for the insured, whereas as long as the premium is paid – the insurer is legally bound to provide the car insurance coverage as per the contract terms and conditions. Further, unlike most ordinary non-insurance contracts, the value of the exchange between the insured and the insurer is unequal and depends on uncertain future conditions.

Instances when you get coverage on physical damage for your car

Instance 1: You are driving down the highway in the rain when you skid on a bad patch of road and hit an electricity pole. Your insurer would pay for any physical damage your car sustains in this incident as it is a road accident in which you collided with an object. Remember that the collision need not just be with other vehicles.

Instance 2: You have parked your vehicle at your regular parking spot, which is reasonably secure. Due to an earthquake a boulder hits your car and it sustains physical damage. Most comprehensive car insurance would pay this damage as it is caused by a natural calamity against which car insurance coverage is provided according to the policy terms and conditions.

It is important to remember that in both these cases any deductible would have to be paid out of your pocket before the insurer pays for the rest of the covered expenses. The deductible to be paid out of pocket includes both the compulsory deductible mandated by IRDAI and any voluntary deductible opted by you.

About different types of car insurance coverage

A car Insurance coverage comprises of three types of coverage. These are:

Own Damage (OD) Cover

This provides financial protection from any damages or losses caused to your car. These damage/losses could result from:

• Road accidents
• Theft
• Natural disasters like earthquake, cyclones, floods, etc.,
• Man-made disasters like fire, riots etc.
  

Third Party Liability (3PL) Cover

This type of cover protects you against legal liability that arise from any accidents that involve your vehicle that resulted in injury or damage to a third party person or property. The compensation from third party car insurance is provided only in case of:

• Death or bodily injury to the third party
• Damage to third-party property

Personal Accident Cover (PAC)

PAC provides financial support in case the insured person either meets a fatal accident or is rendered disabled due to a road mishap. The premium for this type of cover is set by the IRDAI and all drivers on Indian roads must have a minimum cover of ₹15 lakh.

In addition to these, you can also opt for add-on covers to customize the insurance policy to your specific requirements.

Type of car insurance coverage under third party car insurance

As stated earlier, a third party car insurance provides car insurance coverage in two specific scenarios involving your vehicles i.e. accidents that result in:

• Death or bodily injury to the third party
• Damage to third-party property including a third-party vehicle

The insurer would take care of any legal fees involved in deciding the party responsible for the damage as well. There is no specific limit on the liability coverage for bodily injuries or death to the third party and the compensation is decided by a court tribunal. The liability coverage towards damage to third-party property is capped at Rs 7.5 lakh. It is important to remember that no deductible is applied to third-party car insurance.

Further, you may not get car insurance coverage if:

• Damage was caused by a person driving the car without a valid license.
• Damage was caused due to drunken driving or driving under the influence of drugs.

Type of car insurance coverage under comprehensive car insurance

While the actual cover under comprehensive car insurance policy may vary with the provider, at the very minimum it provides coverage against:

• Bodily injuries caused to people (both the insured and third-party) involved in an accident
• Property damage sustained by a third-party including damage to another person’s vehicle
• Damage sustained by the car due to a collision
• Non-collision damage sustained by the car include damage due to a storm, fire or other natural calamities
• Losses due to man-made calamities like burglary, theft, strike or riot.

How to get the best car insurance coverage for your vehicle

Compare policies online

Before you decide on a car insurance policy, compare the offerings from various insurers. This is important as the coverage provided and the premium charged for the comprehensive car insurance policy can vary widely. Further, it would also give you an idea of add-on covers available from different insurers, allowing you to select the ones that you need.

Claim settlement ratio

The claim settlement ratio indicates how often an insurer honours a claim submitted to them. The higher the CSR the better. As a rule of thumb, the CSR should be at least 90%.

Consider additional coverage

Based on your risk profile, you should also consider add-on coverage provided. Remember that the base insurance policy is designed to meet the requirements of a wide variety of drivers and as such may have exclusions that do not work for your particular circumstances. An add-on cover allows you to customize the car insurance coverage to your requirements. For example, if you live in an area that is prone to flooding – you should consider an add-on cover against water damage to the engine.

Choose deductibles wisely

One of the ways to reduce the insurance premium is to opt for voluntary deductibles. This is a two-edged sword as in the case of any claims filed, you will have to pay the deductible out of your pocket before the insurer covers the rest of the expenses. If you opt for a voluntary deductible ensure that it is an amount you can pay without impacting your other expenses.

Select the appropriate Insured Declared Value

Make sure that you select the appropriate value for your car’s IDV. This is a must as if you select a value too high, you will be paying a higher premium without getting any additional benefits. On the other hand, set it too low and you will not have a sufficient cover when you need it the most.