- Unlike other insurance policies, motor insurance is mandatory. As per the Motor Vehicles Act 1988, it is compulsory to have motor insurance to ensure your safety as well as that of others.
- Anyone can get caught in an accident, their car can be stolen, or heavy rains can damage their vehicle – for all of this, having motor insurance can be a lifesaver.
- There are many types of motor insurance such as liability coverage, comprehensive coverage, collision coverage etc.
Motor insurance is a huge market for insurance in India. It has been the front runner in the general insurance category for several years before the pandemic. While it struggled a bit these last two years amid lockdowns, low vehicle usage and much more, it is expected to regain its spot soon.
Today, we are taking a deep dive and are trying to understand motor insurance as a whole better. If you are new to insurance this will help you get an overview of what motor insurance is and the different kinds of motor insurance covers.
What is motor insurance?
Motor insurance, like any other insurance policy, except it is created for vehicles – cars, jeeps, motorcycles, jeeps, commercial vehicles etc. Unlike other insurance policies, it is also mandatory. As per the Motor Vehicles Act 1988, it is compulsory to have motor insurance to ensure your safety as well as that of others. You need to have at least a Third-party Liability Policy to be able to drive legally.
In addition to this, if you care about your vehicle, you can also get a comprehensive policy in place as well.
Read more about comprehensive coverage below.
Why is motor insurance important?
Apart from being a legal requirement, the function of insurance is to cover different kinds of risks. It helps protect you from unforeseen liabilities and events. Anyone can get caught in an accident, or heavy rains can damage their vehicle. Motor insurance is a lifesaver for all of these things.
Benefits of motor insurance
There are several benefits to having motor insurance, such as –
- Legal fees to be paid if you are held liable for the damage.
- Civil liability penalty is not just a legal requirement, but it also ensures that you are covered in case you cause accidental death, injury or property damage while driving.
- Survivors of the deceased will receive monetary support.
- It will cover repair bills if any.
- It will cover damages caused due to other causes such as terrorism, earthquakes, floods etc.
- Low-cost premium.
How is the motor insurance market categorized?
Motor insurance is provided for two types of vehicles –
Private vehicles: This is insurance that needs to be taken for any private vehicle owned by individuals, such as cars, bikes, motorcycles etc. This insurance policy covers damages for accidents, fire, theft, natural disasters, any injury to the owner and injuries caused to third parties as well.
Commercial vehicles: All vehicles that are not used for personal use come under this kind of insurance such as buses, trucks, heavy commercial vehicles, multi-utility vehicles, light commercial vehicles, ambulances, taxi/cabs, agricultural vehicles, auto-rickshaws etc. they are further classified into Goods carrying vehicles, passenger-carrying vehicles and miscellaneous vehicles(construction vehicles, ambulances, etc.)
Types of motor insurance policies
Here are seven common types of motor insurances
Liability insurance – this is the policy that is required by law in India. If you cause accidental death, injury, or property damage while driving, you owe compensation to the affected party(also known as the third party), and this amount is determined by the court. Third-party liability insurance (Akar motor TP policy) covers this compensation and your legal defence fees. In fact, the insurer is the one who goes to court, not you. Of course, this is only for civil claims, if there is a criminal case against you (for driving under the influence, or without a valid license) then the policy will not cover this.
Collision coverage – If you’ve been in an accident and your car or bike has been damaged, having collision coverage will ensure you get paid for the value of your car. It makes more sense to have collision coverage if your car is a new one, as having insurance can help you back to where you were before the accident. In India, the Own Damage (or OD) component of the policy covers this. There are some conditions, such as depreciation, and consequential loss.
Comprehensive coverage – Will your insurance company cover your loss if something damages your car, unrelated to the covered accident, such as theft, weather damage etc.? Such situations are covered under comprehensive coverage. It is one of those great things to have if it fits your budget.
Personal injury protection – While you can still go without buying comprehensive coverage, personal injury protection is something you should get. If you are involved in an accident, hospital costs etc. can quickly add up, which personal injury protection can cover. With this, you can cover your as well as the other passengers’ medical bills, irrespective of who caused the accident.
Uninsured/underinsured motorist protection – Drivers are not always insured. Even if the driver has liability insurance, low coverage requirements may not be enough to cover the expenses of an accident. So, if someone else is responsible for an accident but they are not insured or not insured enough, you may not receive any payment, or you might receive an amount less than what you need to cover the cost of your damages. In such cases, it helps to have uninsured/underinsured motorist protection.
Towing/rental car insurance – Most motor insurance policies offer to tow and a rental car reimbursement as an add on feature. This is something you might have to consider when your car or bike completely breaks down in the middle of nowhere. However, having this coverage will give your family some peace of mind.
Bodily injury coverage – This is especially beneficial if you are found to be the cause of the accident. This can cover the cost of the injuries caused, death of the persons involved. Having the right amount of coverage and proper deductible can highly work in your favour.
Components of the common motor policy
Usually, motor policies are called comprehensive policies, and have a TP component (that covers TP liability) and an OD component (that covers Own Damage; that is any damage caused to your vehicle, by accidents, theft, or acts of God). New vehicles are issued a 3 year TP policy (5 years for 2 wheelers) along with an OD cover that expires after one year, and has to be renewed.
There are also add-on covers that can provide additional benefits, such as zero depreciation, etc.
What happens if you fail to have motor insurance?
Since it is mandatory in India to have motor insurance, if you don’t have one, things could get pretty rough for you:
- Your driving license can be suspended.
- You might face legal proceedings and punishment by law.
- Your vehicle registration could be suspended.
- If you’re in an accident, you will have to cover all damages.
- You can also incur a heavy traffic fine if you drive without insurance.
There you go, these are the common types of motor insurance policies. Knowing this will give you a deeper understanding of insurance as a whole. This is important whether you have a business in the insurance industry or simply need to get a cover for yourself.