How to choose an appropriate car insurance plan


To optimise your car insurance plan, here are a few important points to keep in mind

Car insurance indemnifies owners against any loss arising out of an unforeseen accident or event. With numerous car insurance policies available, how do you go about choosing the most appropriate one? Here is what you need to consider before making a choice.

Third party option and comprehensive cover

According to the law of the land, every motor vehicle owner should at least buy a third-party cover to compensate a third person for damages or losses incurred.

Driving without insurance is a punishable offence under the Motor Vehicles Act. In short, vehicle owners have no choice but to comply.

A comprehensive insurance cover offers third-party protection as well as an insurance cover against any damage, loss or theft. Opting for a comprehensive policy, which would cover small collisions, major scratches or bumper hits, is recommended.

When choosing an appropriate car insurance policy, the most important aspects that would help you narrow down your choice are as follows.

How much would your premium work out to?

Insurance premiums are not standard and differ across segments. Premiums are based on:
IDV or the insured’s declared value of the car: This is the market value of the car at the time of purchasing the insurance. It is not to be confused with the price at which you have purchased the car. It takes into consideration depreciation or wear and tear of the vehicle.
Car cubic capacity is nothing but the engine’s capacity. Higher the cubic capacity, greater will be the premium payable.

Available bonus/discounts

A no-claim bonus is offered to policyholders for claim-free policy years. With an accumulated no-claim bonus, your insurance premium payment could reduce substantially. You could also transfer any accumulated no-claim bonus from your old vehicle to your new one and seek discount on the new car’s insurance premium.

Insurance companies also offer discounts on vehicles installed with anti-theft devices approved by the Automotive Research Association of India (ARAI). This discount offered is around 2.5% of the total premium with a maximum cap at Rs. 500.

Voluntary excess: Premiums may be reduced with voluntary excess, which is the option to bear a pre-determined loss for every claim made.

Add-ons with your policy

Check if there are any add-on benefits with the policy. Many insurers offer benefits such as personal accident cover along and cashless claim settlements.

Zero depreciation cover
If you have a fairly new car, which is less than three years old, opt for a zero depreciation cover. This cover offers a full claim amount without taking into consideration any depreciation on the value of the parts replaced. This option is available for a slightly higher premium. The parts that would be covered under this option are fibre, glass, rubber parts and plastic.

A standard car insurance policy considers depreciation of parts in the range 0%-40%. Now with the zero depreciation option, a 100% reimbursement on replaced or depreciated parts can be availed.

Luxury car owners: Maintaining a luxury or high-end car doesn’t come easy. Cost of repairs could run up pretty high and could burn a hole in the pocket. Lower availability of authorised repair workshops and spare parts make it an expensive affair. It is thus prudent to take wider coverage for such cars. Insurance for luxury cars should include:

Engine cover: Opting for an engine cover could protect the vehicle engine against any damage in case of flooding, water intrusion, etc. The cost of replacement of a luxury car engine may run up to almost 30% of the cost of the vehicle.

Zero depreciation reimbursement: A depreciation reimbursement settles the full claim amount without taking into consideration any depreciation on the value of parts replaced. This is an added advantage as the spare parts and the cost of its replacement could run up high in high-end cars.

Petrol car owners: If you are the owner of a petrol car, there is some reason to cheer. Petrol cars have lower insurance premium than cars that run in on diesel, LPG or CNG. This is because; insurance companies feel petrol cars in comparison to diesel cars would be used much lesser.

Second-hand car owners: If you have purchased a second hand car and are seeking insurance for the same, your IDV would be the market value of the car, irrespective of what you would have actually paid for. As vehicles undergo depreciation overtime, the value of the car decreases too.

Car owners in Tier I cities: If you are a car owner registered in a Tier I city—like Mumbai, Delhi and Chennai—the premium that you would pay would be much more than a Tier II or III city. This is because insurance companies consider there to be more risk of theft or accident in a Tier I city.

Points to keep in mind: To optimise on your car’s insurance plan, here are a few important points to keep in mind.

Do not make small claims. This would help you accumulate your no-claims bonus.

Understand your policy well. Read between the lines and understand the terms and conditions to know what is covered and what is not. Check to see if there are discounts on renewal of policy.

Drive safely. Needless to say careful driving could minimise the risk of accidental damage to your car.

Article contributed by MyInsuranceClub.

Read more:

Know more about car insurance

How to file vehicle insurance claims

No claim bonus: Save on your car’s insurance

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