If you are new to car insurance, it might seem a bit complex and intimidating. Begin by understanding the very basics of this industry. In this article, we will shed light on some of the basic facts that will help you understand car insurance and eventually buy the most suitable insurance policy for your car.
1. Select a policy that suits your needs
Remember that there are two types of car insurance policies – Third-party car insurance and Comprehensive policy. The former is mandatory by Indian law, however, more coverages and benefits are offered by the latter. If you wish to avail minimum coverage i.e. only against third-party liabilities, opt for third-party car insurance. However, if you want to protect your car as well, go for a Comprehensive policy.
2. Set the IDV correctly
IDV is a jargon related to car insurance that you will come across frequently while buying the policy. IDV stands for Insured Declared Value. It is the approximate current market price of your car. Note that IDV is not the resale value of your vehicle, it is more like a reference point for the current value. Remember that you do not need to set an IDV if you opt for third-party car insurance. You can only select the IDV range when you buy a Comprehensive policy.
In case your car gets stolen or meets with a major accident where it is damaged beyond repair, the car will be deemed as ‘total loss’. This is where IDV will come into the picture. Your insurance company (i.e. ACKO) will then compensate you the approximate IDV amount that you had set while buying the policy. Thus, it is very important to set the right IDV. Setting a higher amount will increase the car insurance prices, whereas setting a lower amount will reduce the claim amount.
Also, read: IRDAI Rules for Car Insurance
3. A higher deductible may lower the premium, but it also lowers the claim amount
A deductible is an amount that the policyholder needs to pay at the time of claim settlement. This is a small amount paid as a share by the policyholder. Basically, there are two kinds of deductibles in car insurance – compulsory and voluntary. You can choose the amount you wish to pay at the time of claim under the voluntary deductible. It is commonly believed that setting a higher deductible is fruitful for safe drivers. However, setting a higher deductible will result in a lower claim amount. Thus, be careful while setting a voluntary deductible.
4. Only useful add-ons should be bought
If you have opted for a Comprehensive car insurance policy, you will be given an option for selecting additional coverages i.e. add-ons. If you have a new car, you can select from a wide range of add-ons, for example, Zero Depreciation Add-On, Return to Invoice Cover, Roadside Assistance Cover, Engine Protection Add-On, No Claim Bonus (NCB) Cover, etc. Each add-on is to be bought separately. This will increase the cost of your policy. You need to select only those add-ons that suit your requirements. For example, if you think there are really less chances of raising a claim, you may skip NCB Cover.
Also, read: Comprehensive vs Third-Party Car Insurance
5. Timely renewal will help you retain your NCB
It is not only necessary to buy an insurance policy, but also to keep it active at all times. Usually, a car insurance policy is valid for 1 year, long-term policies are also available. You need to renew your car insurance in time or else the policy will lapse. A lapsed policy is of no use and will not provide any kind of financial security to you or the third party. Also, you may lose the accumulated NCB i.e. the No Claim Bonus if you fail to renew the policy in time. NCB is a discount you receive on car insurance prices when you do not raise any claim. Since this discount can be as high as 50% for five consecutive claim-free years, you need to renew the policy in time to retain it. Not renewing post 90 days of the expiry of the policy, will lead to losing out on this benefit and also a higher premium amount during renewal time
These were some of the basics that will help you understand the concept of car insurance. Remember to read the terms and conditions, exclusions, and the fine print mentioned on the policy document.