A primer on car insurance (in India)

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With a car comes great expenses. One of those is car insurance. I am a novice car driver and owner. So when time came to renew my car insurance, I found myself drowning in insurancespeak. This post is an attempt to distill my understanding of car insurance for my future self.

Table of contents

  1. Table of contents
  2. The concept of car insurance
  3. Damage to someone or their property
  4. Damage to own car
    1. Zero depreciation
    2. Return to Invoice
    3. Engine cover
    4. No Claims Bonus
  5. Comprehensive policy
  6. How I renewed my own damage policy
  7. In closing

The concept of car insurance

Suppose a mishap occurs that involves your car and someone else. One or more of the following unfortunate outcomes can happen:

  1. Someone's property is damaged.
  2. Someone is harmed, physically or lethally.
  3. Your car is damaged, reparably or not.
  4. You or your passengers are harmed, physically or lethally.

The concept of car insurance aims to alleviate the first three outcomes. For the fourth, a proper health and life insurance should be in place.

Damage to someone or their property

The someone involved in the mishap could seek compensation for damages caused to them or their property. A third-party policy (TP) covers this damage. A TP is a legal requirement in India so that when someone raises a claim, this policy automatically kicks in.

Damage to own car

An own damage policy covers damage to your own car. Fixing a car is an expensive affair. While this coverage is not legally mandated, it makes financial sense to purchase one.

Much of the insurancebabble orbits the own damage policy.

There are several ways to get your car damaged - accident resulting in partial damage; accident resulting in irreparable damage, also called total loss; theft; natural disasters like flood, storm, earthquake, etc.

A basic own damage policy usually covers the above clauses.

One can choose to buy add-ons to a basic own damage policy, which provides extra layers of coverage, but also increase the premium. These add-ons are usually offered only for the first 3 to 5 years of a car's life.

Zero depreciation

A car is a depreciating asset. The insurer takes this into account, and by default, only pays out at a depreciated rate of the repaired or replaced parts. A zero depreciation add-on ensures that the insurer pays out at the full rate.

Return to Invoice

Depreciation also comes in play in theft or total loss, when the car has been irreparably damaged. In such an event, the insurer pays out the current market value of the car, i.e., manufacturer price minus cumulative yearly depreciation. This maximum sum set by insurer is called Insured Declared Value (IDV). So, a claim of theft or total loss is capped at IDV. Insurers provide a Return to Invoice add-on to set the maximum assured value at the original invoice value, including registration cost and road tax.

Engine cover

A basic own damage policy also does not cover engine damage caused by water or oil leakage. An Engine Protect add-on is required to cover this type of damage. I am still confused about whether a basic own damage policy would cover any engine damage caused by a flood since it covers damage caused by natural disasters.

No Claims Bonus

If you didn't make use of your own damage policy in a year, you become eligible for a 20-25% deducation on the premium at the time of policy renewal. This is essentially the No Claims Bonus.

Comprehensive policy

You may choose to buy third-party and own damage policies separately, from different insurers. Or you can choose to buy a comprehensive policy from an insurer, which includes both of them.

How I renewed my own damage policy

My car (Honda Elevate) came with a comprehensive policy issued through the dealership. It was comprised of a 3-year third-party policy and a 1-year own damage policy with the same insurer (Royal Sundaram).

When time came to renew the own damage policy, I gathered quotes from the dealership for those insurers with which they had a cashless tie-up at their garages. Then I generated quotes for the same parameters from these insurers' official websites, to gauge the commission the dealership would receive.

To my surprise, the quotes generated from the official website were on par with or even pricier than the quotes from the dealership. So I went back to the dealership, negotiated the premium down a bit further, and purchased a policy from them.

In closing

There are two types of car insurance policies - third-party policy to cover damage caused to someone else, and own damage policy to cover damage caused to your own car. The rest are add-ons.

When you encounter the term zero dep insurance, keep in mind that zero dep insurance = own damage policy + zero depreciation add-on.

Also, comprehensive policy = own damage policy (with or without add-ons) + third-party policy.