Today, a car is not just a vehicle that is used for travelling or transportation. It is a status symbol and reflects the lifestyle of a person.
Most people spend weeks and days researching the latest model of the car, the comfort and luxury it provides, design, mileage, and many other criteria. But, we do not think about the safety measures we must take to protect our beloved cars. Not just because of the strict rules of the government, it has also become a must for everyone to buy Car Insurance today due to the increasing accidents and risks we face.
If you are in the age of 25 or 30 planning to buy a brand new car to have a better lifestyle or a person who has just now bought a car, do read this article to understand what car insurance is and how it works. By learning the working of car insurance, we leave the freedom to you to decide on what type of car insurance to buy, where to buy, and from whom to buy.
What is car insurance?
Typically, car insurance is an agreement/contract between the insurer (insurance provider) and the insured (you) to share or to contribute to the risks of owning a car. You might wonder about the risk that could arise just by owning a car, but the fact is:
1 You drive the car and might meet with minor or major accidents within a fraction of seconds due to your negligence.
2 There can be a natural calamity such as an earthquake/fire that might either damage your car entirely or partially.
3 Chances of theft, robbery, physical damage to your car are also possible.
4 Situations, where your car can be damaged due to the carelessness of another driver on the road, can cost you a lot.
You cannot predetermine the occurrence of such risks. All these are unexpected happenings and will put you in a financial crisis. To save you from draining your savings, car insurance acts as an investment that will share your risks at the most needed times. In India, it is compulsory to have vehicle insurance irrespective of whether it is a commercial or personal vehicle.
How does car insurance work?
According to Indian law, it has become mandatory for everyone to have a car insurance policy. So, the insurance providers/insurance companies have direct tie-ups with the car manufacturers and the buyers of the car get instant quotations during the purchase itself. The customer purchases the policy and the insurance company charges a particular amount of premium from them to provide the coverage during times of risk. It works on the ‘use it or lose it’ policy. You will be paying a certain amount of premium every year to get the coverage during the repairs/accidents.
If you are lucky enough not to claim the coverage because you did not meet with any accidents, then the premium amount is lost. A good thing about not claiming the coverage is your profile stays on the non-risky list and you can avail ‘no-claim bonus’ during the time of renewal.
A No-claim bonus is an amount starting from 20 per cent to 50 per cent which will be rewarded to you back or discounted in the renewal of the policy. It is a reward given to you for driving safely without facing any accidents or bringing an expense to the company.
How is the premium on car insurance calculated?
The premium you pay for your car insurance policies majorly depends on the type of insurance you have purchased. There are generally two types — they are a comprehensive policy and a third party liability cover.
A comprehensive policy provides complete coverage to all the people involved in an accident. It compensates for the damage of the vehicle, medical bills of people involved in the accident, death of any person, etc. Here, the premium is higher since the coverage the company will provide during the risk is also higher.
A third-party liability insurance provides coverage only for the damage caused by you or your vehicle to the opposite party. It does not cover your personal property and medical expenses incurred on you. It is obvious that the premium for third-party insurance will be lesser when compared to comprehensive policies. Apart from the type of policy, the other factors that influence your car insurance premium are:
1 Age of the driver/owner of the vehicle.
2 The profession of the owner.
3 Driving habits – Frequent driving will have a higher premium and vice versa.
4 Driving record – The number of claims the person has made in the previous years and the accidents that occurred.
5 Locality- The insurance premiums are higher in metro cities as they have a higher risk of accidents due to increased traffic.
6 Deductibles – The higher your deductibles i.e., out-of-pocket expenses during an accident, the lower will be the premium.
7 The model of the vehicle, type of fuel, etc. Usually, a diesel car attracts a higher premium when compared to petrol cars.
8 Installation of modern safety measures like a car alarm, anti-theft devices, airbags can lower your premium.
Conclusion
Always note the number of the other car when the accident has occurred with two parties. Submit all the documents required by your insurance provider to make the claim. To know the documents required for the claim, do contact your agent or the company directly.
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