auto insurance

However, considering the high risk of accidental damage to your vehicle and the high cost of repairs especially for newer or premium cars, it is advisable to cover your vehicle under a comprehensive insurance policy.

The minimum legal insurance under Motor Policy A, or 'Act Only Policy' covers unlimited liability in case of death or bodily injury to third party, and damages to third party property to the extent of Rs 6000.

A comprehensive insurance policy (Motor Policy 'B') covers not just third party liability but losses due to accident, fire, theft, floods, earthquakes, and other specified perils. Damages to third party property above Rs 6,000 can also be covered under this policy.

Car accessories like music systems, air-conditioners and so on can be covered by paying additional premium. By paying extra premium, you can also cover against personal accident to yourself, spouse, family members, employees and so on.

Insurance premium

You can obtain an insurance policy by paying a premium to an insurance agent or to the insurance company. The premium amount is calculated based on the car's market value, which is a function of the make and model, condition of the vehicle and the resale value, and the value of its accessories. Premiums are paid annually, and the insurance is valid for a period of a year.

The market value of the car should be estimated every time you renew your premium. The insurance must be renewed prior to the expiry date of the policy, as it is illegal to drive without a valid insurance cover.

The insurance premiums are regulated by the All India Motor Tariffs, and are therefore uniform across insurance companies. For a comprehensive policy, the premium covers all stated risks, but if you wish to exclude certain risks – such as earthquake – you may inform the insurance company and they will offer you a discount on the insurance premium.

You could also opt for voluntary excess i.e. undertake to bear a fixed percentage of the loss for every claim, and thus avail of a discount in premium. A five percent discount (subject to a maximum of Rs 100) is also available for members of recognised automobile associations.

Motor insurance policies are normally taken for a period of one year. While you cannot insure your vehicle for more than a year, a policy for a shorter term is available, which is suitable if you are planning to sell your vehicle within a few months. The premium for this short period insurance is more expensive than the pro-rata premium for a full period insurance.

No claim bonus

If you do not make any insurance claims during the duration of your insurance policy, you are eligible for a no claim bonus. No claim bonuses are discounts on the insurance premium for the following year (i.e. discounts offered on the renewal premium) and are as follows:

1.No claims for one year: 20 percent discount on 2nd year premium

2.No claims for two years: 35 percent discount on 3rd year premium

3.No claims for three years: 50 percent discount on 4th year premium

4.No claims for four years: 65 percent discount on 5th year premium

The discount is applicable to that part of the premium that covers 'own damage'. You can avail the bonus when you renew your policy, or within 90 days of its expiry.

If you sell your car you are eligible for the bonus, which is adjusted against the premium of a new car, if the purchase is made within a period of three years. In case you purchase a used car, you can transfer the existing insurance policy to your name by informing the insurance company within 14 days from purchasing the car.

Malus

On the other hand, if you make a claim in consecutive years, the insurance company will load an additional penalty or malus on your renewal premium. If you make claims every year, your malus will be as follows:

1.On 2nd year renewal premium: Nil (i.e. your no claim bonus reduces from 20 percent to nil)

2.On 3rd year renewal premium: 10 percent

3.On 4th year renewal premium: 30 percent

4.On 5th year renewal premium: 50 percent

For example, if you do not claim any insurance in the first year you are entitled to a 20 percent bonus on your 2nd year premium.

If you claim insurance in the 2nd year then you are not eligible for any discount on your 3rd year premium, i.e. your no claim bonus is nil for the 3rd year premium. If you do not make any claims in the 3rd year you are again eligible for a 20 percent discount on your 4th year premium.