Frequently Asked Questions for Car Insurance

Car Insurance Faqs

• Q1. What is car insurance?

  Car insurance is also called motor insurance. The policy is a contract between the insured and the insurer to protect them from unforeseen mishaps while driving on the road.

  A car insurance policy provides the policyholder coverage against third-party liabilities and own damages arising due to accidents/collision while driving on the road.

• Q2. Is car insurance mandatory in India?

  Yes, car insurance is mandatory in India for many reasons, the first and foremost being the rising number of road accidents in India.

  The Motor Vehicles Act, 1988 states that every owner-driver is legally required to carry a car insurance policy while driving on the Indian roads. Owner-drivers of the car are required to at least carry a valid third-party car insurance policy.

• Q3. What does ‘premium’ mean in car insurance plans?

  Car insurance premium means the cost you are required to pay to the insurance company to buy a car insurance plan. It is the amount that the policyholder pays to the insurer annually to get coverage against unforeseen accidents on the road and be able to drive legally. The amount of premium is charged differently by different insurance companies based on the type of coverage provided and the policy tenure. The premium also depends on the IDV of the vehicle, registration year, RTO, etc.

• Q4. Is car insurance also required for old cars?

  Yes, as per the Motor Vehicles Act, 1988, car insurance is mandatory for all types of cars in public places in India, irrespective of their age. Though, older cars generally attract a lower amount of premium as the value of the car in the market decreases with time.  

• Q5. Will I require car insurance for an electric/CNG/LPG car?

  Yes, owners of electric cars or cars fitted with CNG/LPG are also required to carry a valid car insurance policy. However, the premium charged can be slightly higher.

• Q6. What are the various types of car insurance plans I can buy for my vehicle in India?

  There are 2 types of car insurance plans available in India that you can choose from. The most basic and mandatory car insurance plan is third-party car insurance. This plan covers the policyholder only against liabilities arising out of vehicular or bodily damages caused to a third party.

  Meanwhile, comprehensive car insurance is a more premium car insurance plan that provides enhanced protection by covering the policyholder against third-party liabilities as well as the damage suffered by the owner-driver's car.

• Q7. Can car insurance premiums be paid in installments?

  No, you cannot pay car insurance premiums in installments. Section 64VB of the Insurance Act, 1938 does not permit insurance companies to take the risk of providing coverage to the policyholder till the time full premium payment is received from the policyholder before the start date.

• Q8. What are the factors that affect car insurance premiums?

  The cost of car insurance premiums is affected by a lot of factors. Having a basic understanding of the factors can help you save on the cost of car insurance at the time of purchase or renewal. Following are the factors that affect car insurance:

  • Car registration location: Cars registered in a tier 1 city tend to attract a higher amount of premium than the ones registered in tier 2 or 3 cities.
  • Manufacturer and variant type: Different variants of cars attract different premium amounts as the amount of coverage to be offered depends upon their value in the market.
  • Safety/Anti-theft security in cars: If there are adequate safety systems installed in cars that might prevent theft, the risk decreases leading to lower cost of the premium.  
  • Policy type: Comprehensive car insurance is a little expensive than third-party car insurance as it provides extended coverage benefits for your car damages. Meanwhile, third-party car insurance comes with a relatively cheaper premium as it only provides basic third-party coverage benefits.
  • Add-On Covers: The additional coverage you will opt for with comprehensive car insurance directly impacts the amount of premium to be paid for the car insurance.

• Q9. What is a 'No Claim Bonus' in a car insurance policy?

  No claim bonus or NCB refers to the reward that your insurance company gives you for not filing a single claim throughout the policy tenure. This reward is the discount you get on the premium to be paid for car insurance renewal. NCB generally starts at 20% and goes up to 50% for 5 consecutive claim-free years. However, the NCB resets to 0% even if you make a single claim in a policy period.