Is car insurance compulsory in India?
Under the provisions of Motor Vehicles Act all the vehicles which are plying in public places shall have at insurance policy at least to cover third party liability as specified under the Act.

What type of policies are available for motor vehicles Insurance?
There are two types of policies available for motor vehicles -
  1. Third party Insurance and
  2. Comprehensive insurance policy.


What is a Third party Insurance policy?
It is mandatory for every auto owner to get third party insurance cover. It covers the car owners against Act Risks under Section 146 of Motor Vehicles Act 1988. The scope of cover of the third party insurance is to pay compensation for death of bodily injuries to third parties and also damage done to the property of the third party. For cars the 'Act Only Policy' covers third party property damages upto Rs. 6000. For theft or fire risk covering you need to pay more.

What is a 'comprehensive insurance' policy?
A comprehensive insurance policy is more than a normal third party insurance. It includes third party cover, any damage or loss caused to the vehicle due to reasons like fire, accident, theft, flood, earthquake, riots, etc. You can also get insurance for car accessories like music system and air-conditioner.
However, you will have to pay additionally for the additional insurance cover.

What risks are covered under the comprehensive insurance' Policy?
The insurance company will indemnify the insured persons against loss or damage caused to the insured vehicle by any of the following:

  • fire, explosion, self ignition or lightning
  • burglary, housebreaking or theft
  • riot and strike
  • earthquake (fire and shock damage)
  • flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm,
    frost,
  • accidental external means
  • malicious act
  • terrorist activity
  • while in transit by road, rail, inland waterway, lift, elevator or air
  • land or rockslide
  • and Third Party Cover.


What are the risks covered under Third Party Policy ?
The insurance company covers any amount which is legally required to be paid by the insured person, to third parties on Account of their death, bodily injury or damage to their property arising out of the use of the insured car. The insurance company also indemnifies the legal costs and expenses incurred by the claimant, if the insured becomes legally liable to pay them.

The insurance company will further indemnify any legal liability payable by the insured to the occupants in the car (insured vehicle) provided they are not carried for hire or reward and are not employees / family members of insured.

The indemnity under this policy is available to any driver who is driving the car if he has been permitted to do so by the insured and provided such driver does not have any other similar cover.

What are the categories of vehicles that are covered by a Motor Insurance Policy?
For the purpose of insurance, motor vehicles are divided into three classes:

Private cars: This category comprises of cars, including station wagons, used for social, domestic, business or professional purposes (excluding those used for the carriage of goods other than samples)

Motor Cycles: This includes motorcycles with or without sidecars, pedal cycles, mechanically assisted pedal cycles and motor scooters with or without sidecars

Commercial Vehicles: All vehicles excluding private cars, motor cycles and vehicles running on rails come under this category

How is premium calculated?
The premium of the insurance depends on various reasons. The factors include the value of the vehicle, the power of engine, seating capacity, vehicle type, age of the car, city of registration, period of coverage, and the value of accessories like air-conditioner and music system.

How is the value of accessories calculated?
The value of the accessories is calculated on the basis of original cost of the accessory at the time of purchase less depreciation for the usage.

For what value the car is to be insured - Depreciated value or reinstatement value?
For the First five years the Insured Value is IDV. The car is neither to be insured for reinstatement value nor for depreciated value. It is to be insured for second-hand value in the local market for a similar type of car for a
similar model. In the event of loss, the liability of insurance company is the maximum compared to the Market value or the amount of insurance whichever is less.

How Insured Declared Value (IDV) of the car gets determined?
The IDV of the vehicle is to be fixed on the basis of various factors like the manufacturers listed selling price of the model, the vehicle proposed for insurance at the commencement of insurance renewal and less depreciation for usage. Normally most of the Insurance Company follow following rules to calculate IDV -


Age of the vehicle % of Depreciation
Not exceeding 6 months 5%
Exceeding 6 months but not exceeding 1 year 15%
Exceeding 1 year but not exceeding 2 years 20%
Exceeding 2 years but not exceeding 3 years 30%
Exceeding 3 years but not exceeding 4 years 40%
Exceeding 4 years but not exceeding 5 years 50%

What factors influence the premium for a car insurance?
The cubic capacity, use of car, normal area of operation and the value of car proposed for insurance decide the premium payable and also various extensions opted for.

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 are replace and the 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 for which 50 percent depreciation is deducted.

What is a 'no-claim(NCB)' discount?
You get a 'no-claim' discount when you become eligible for a discount in the premium of a comprehensive insurance policy at 20% for the 1st year, 25% for the 2nd year, 35% for the 3rd year, 45% for the 4th year and 50% for 5th year afterwards.

The value of the discount is decided upon the insurance claims you have made in that particular year. The amount of discount is adjusted against renewal premium. At the time of renewing the policy the no claim bonus can be availed of. At the time of buying a new car you can transfer the no claim bonus to a new car from the last one.

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