Auto Insurance

March 6, 2011   ·   0 Comments

Lesson 13:

One can find everything he wants to know about Auto Insurance. We have covered from the basics on Auto Insurance to Different types of Auto Insurance Policy & Benefits of No Claim Bonus & how to claim the money?

Driving your vehicle without Motor Insurance is a legal offence in India & you may be fined for it as it is mandatory to have Motor Insurance.

1). Damage to vehicle: Motor Insurance covers you against any loss or damage causing by the following:

Natural Calamities:

Fire, explosion, self ignition or lightning

Earthquake (fire and shock damage)

Flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, and frost.

Landslide and rockslide.

Man made Calamities:

Burglary housebreaking or theft,

Riot and strike, malicious act, and

terrorist activity

Whilst in transit by road, rail,

inland-waterway, lift, elevator or air

2). Third Party Liability: It covers any damage or loss to the third party in terms of injury or damage caused to the property.

3). Add on Covers: You can extend your policy by paying the extra premium & covering the following risks:

Damage to the Electrical / Electronic fittings not part of standard equipment of the vehicle such as stereos, fans, air-conditioners etc.

Damage to the CNG/LPG Fuel Kit System

Personal accident cover under private car policies for passengers & paid driver

Legal liability to employees while traveling or driving (not as paid driver)
Classification of Auto 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.

: 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.

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.

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.

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).

List of Some of Insurance Companies offering Auto Insurance:

  • HSBC India – Auto Security
  • Bajaj Allianz – Bajaj Allianz’s Motor vehicles Insurance
  • ICICI Lombard – Heavy auto Plans
  • United India Insurance – Motor insurance Package and Liability Only Policies
  • The New India Assurance- Motor Policy

No Claim Bonus: It is a kind of discount given on the renewal of the policy when the insured doesn’t make claim in the earlier year which is given on the own damage component of the premium. If the insured makes the claim then the No Claim Bonus will be zero for the next renewal. This discount could be as high as 50%.


You will get 20% discount (NCB) for not making claims in the first year; 25% in the next second year, 35% in the third year, 45% in the fourth year & it exceeds to 50% in the fifth year for not making claims.

1). The insured will get discounts on the premium paid when he/she will choose for Voluntary Excess in addition to Compulsory Excess. The Excess is defined amount of loss which the insured has to bear in every claim he/she makes.

2). The insured who s the member of Automobile Association in India gets discount to 5% on premium.

3). The insured also gets a discount if there is an anti theft device fitted to their vehicles & which are approved by Automobile Research Association of India (ARAI). To list out the anti theft devices eligible for premium discounts, the insured must check with various insurance companies.

Your vehicle’s Insurance is governed by the India Motor Tariff which does not permit a policy period of more than 12 months. However, you can extend your policy for a period not exceeding 12 months, by paying an additional premium and detailing your reasons for extension. If the Insurer accepts your request, the policy will carry a warranty specifying that on the extended period’s expiry the policy will be renewed with the same Insurer.

Total Loss Situation

Total Loss refers to accident damage to your vehicle where the cost of repairs amounts to more than 75% of the depreciated value (of the vehicle) on your policy. Typically, one can claim total loss damages as follows:

  • Inform the insurance company the time, date and place of the accident.
  • File a First Information Report (FIR) at the police station closest to the place of mishap. Documents like registration book, tax paid receipt, insurance papers, driving licence, etc. are needed while lodging the FIR.

You will need to provide the following to the insurance company:

  • Original registration certificate book.
  • Duplicate key.
  • The ownership of the car is then transferred to the insurance company and documents pertaining to transfer of ownership are filed. A No Objection Certificate (NOC) is required from the Regional Transport Authority (RTO) for the transfer of the vehicle.
  • If the vehicle has been damaged by fire, then a report from the Fire Brigade authorities will also be required.

Total Loss claims could take a long time depending on how quickly or otherwise you are able to arrange for reports from the police and the fire brigade. Do keep the documents ready to enable a smooth process.

Report the matter to the Insurance company, Police (FIR) and the Road Transportation Office (RTO) where the vehicle is registered. Also obtain an acknowledgement from the RTO on a copy of your letter intimating the loss of the vehicle to them.

Do you think we missed on something on Auto Insurance in this Article. If yes, please let us know. Sharing your Views will be really appreciated.

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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