What is Car Insurance?
Car Insurance means insuring the financial risk involved while operating the car. The car might meet with any damages, accident or may be lost or stolen. In such a situation the losses borne by the owner may be compensated by the insurance company if the same is covered under auto insurance policy. Under the provisions of Auto Vehicles Act all the vehicles, which are operating in public places should have a car insurance policy at least to cover third party liability as specified under the Act. It means that the car insurance must cover the third party in case of any accident. It may or may not cover the damages of the owner of the car.
Car Insurance policy can be classified as follows:
Third Party Car Insurance Policy : This type of policy only covers the third person who has been damaged or injured in an accident where the owner is accountable. It covers the insured person's liability to third parties' loss caused by an accident involving the auto vehicle of the insured. 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 law of India.
Comprehensive Car Insurance Policy : This type of plan has a wider scope and covers all the above mentioned liability along with the insured person’s damage, theft, expenses and injuries in result of an accident of the auto vehicle. This type of policy can be extended to increase benefits as an additional feature.
Which one of the 2 types of Car Insurance Policy is better?
It is sensible to opt for a comprehensive motor insurance policy instead of a third party motor insurance policy because it covers the damage of self over and above the liability of the damages of the third party in case of an accident.
- If the car is damaged by another car on a hit-and-run accident, then the owner is not liable to get any payment under third party insurance. For all such occasions, one needs comprehensive motor insurance policy.
- Even if the car is damaged by self while driving, parking, etc. it is only covered under Comprehensive Motor Insurance plan and not under third party insurance policy.
- Theft and other damages, other than accident where one suffers bodily damage, is again only covered under comprehensive motor insurance plan and not under third party insurance policy.
To sum it up, most people are thus advised to purchase the comprehensive motor insurance plan and not the third party motor insurance policy only, as the benefits are limited.
Some more information on Auto Insurance
Factors which determine the premium of Auto Insurance:
The cubic capacity, use of vehicle, normal area of operation and the value of vehicle decide the premium payable for the vehicle insurance.
How much would the insurance company pay in the event of an accident?
In case of an accident, the insurance company pays for cost of damaged parts which needs to be replaced and the minimum labour cost to repair the vehicle. As per the revised regulations, depreciation is not deducted from the cost of the parts except for the tyres and tubes. The maximum amount payable would be the insured value of the vehicle.
On what value will the vehicle be insured?
The vehicle will be insured of the resale value of the vehicle in the second hand market. It is to be insured for second-hand value in the local market for a similar type of car, for a similar model. When there is a loss, the liability of insurance company is the maximum compared to the market value or the amount of vehicle insurance whichever is less. The insured value is called the IDV (Insured Declared Value).