A vehicle insurance policy is a compulsory requirement for your vehicle if you own one. The Motor Vehicles Act, 1988 mandates that each vehicle on Indian road should carry a valid insurance policy on it to run legally. If your vehicle does not have an insurance cover and you are caught without it, you would face penalties in the form of fines and even imprisonment in extreme cases. Having a vehicle insurance policy, therefore, is necessary if you wish to drive your vehicle in India legally.
When it comes to vehicle insurance, there are different types of policies available in the market. These policies cater to the different coverage needs of different vehicle owners. The different types of motor insurance policies are categorised based on the vehicle that they insure, the coverage offered and the duration of the coverage. So, let’s understand the different types of motor insurance policies based on the different categories which you can find in the Indian motor insurance market –
Types of motor insurance plans
- Based on the vehicle covered
Based on the type of vehicle which the policy covers, there are three types of motor insurance policies available in the market. They are as follows –
|Type of motor insurance policy
|Private car insurance policy
|This policy covers privately owned cars
|Two-wheeler insurance policy
|This policy covers two-wheelers which are owned and used privately
|Commercial vehicle insurance policy
|This policy covers vehicles which are meant for commercial use. Commercial vehicle insurance policies can be further subdivided into the following two types –
Passenger carrying vehicles insurance – this policy covers passenger-carrying vehicles like bus, taxis, bikes, etc.
Goods carrying vehicles insurance – this policy covers vehicles which are used for the transportation of goods like trucks, lorry, trailers, etc.
- Based on the coverage offered
Motor insurance policies can also be differentiated based on the type of coverage that they provide. The types of motor insurance policies under this category are as follows –
- Third-party liability-only policy This policy covers third party financial liabilities which you might face in the following instances –
- If you kill any individual by your vehicleIf you injure any individual physically by your vehicleIf you damage any property belonging to any individual
- Comprehensive insurance policy While the third party policy is mandatory and covers any third party liability, it does not cover the financial loss you suffer if the vehicle itself is damaged or stolen. In such cases, you are supposed to bear the financial cost of the damage or theft of the vehicle. However, a comprehensive policy comes to your rescue and provides coverage against the damages which the vehicle might suffer. This is called own damage cover. A comprehensive motor insurance policy covers the mandatory third-party liability as well as the financial loss suffered in the following cases –
- When the vehicle is damaged due to natural causes like earthquakes, floods, hurricanes, cyclones, etc.When the vehicle is damaged due to man-made causes like fire, riots, strikes, malicious damage, etc.When the vehicle is damaged during its transportation through air, land or waterWhen the vehicle is stolen
- Standalone own damage insurance policy This is a new type of motor insurance plan which is available for vehicles bought on or after 1st September 2018. The policy provides only own damage cover which covers only the damages suffered by the vehicle or theft. Third-party coverage is not offered under the plan. The plan is offered only for those vehicles which already have a valid third party cover on them. So, if you have already bought a third party cover on your vehicle and you want to add the own damage cover too, this policy can be added to the standalone third party coverage for making the policy comprehensive .
Even though a third party insurance policy fulfils the legal requirement of insurance cover on your vehicle, its coverage is limited. You should, therefore, invest in a comprehensive motor insurance policy for your vehicle. Some of the major differences between the third party and comprehensive motor insurance plans can be analysed as below –
|Points of difference
|Third-party plans are legally mandatory
|This policy is not legally mandatory. You can choose to buy the cover voluntarily for an all-inclusive coverage on your vehicle
|Scope of coverage
|Third party policies cover only third party liabilities. Coverage for damages suffered by the vehicle is not allowed
|Comprehensive plans cover both third party liabilities and the damages suffered by the vehicle itself. Moreover, if you choose add-ons, you can further enhance the coverage of the plan
|Add-ons are optional coverage benefits which are not available with third party plans
|Optional add-ons are available with comprehensive policies
|Premium is determined by the IRDAI (Insurance Regulatory and Development Authority of India). It is fixed across all companies and depends on the cubic capacity of the vehicle. The premium is the lowest
|Premium is higher than the third party as it also includes own-damage premium. The premium is determined by the insurance company based on various factors. The premium rate is different across insurers
|The claim amount is determined by the motor accidents tribunal. Physical injuries and death are covered up to an indefinite amount but for property damage, the maximum claim is limited to INR 7.5 lakhs
|The claim liability of the insurance company is limited to the Insured Declared Value (IDV) of the vehicle. The claim payable is determined the actual loss suffered subject to a maximum of the IDV
|No claim bonus
|No no-claim bonus is allowed under third party plans
|A no claim bonus is allowed if no claims are made in a policy year. This bonus increases after every successive claim free year and allows a premium discount on renewal
|Premium discounts are not available under third party plans
|Different types of premium discounts are allowed under comprehensive motor insurance plans
- Based on the coverage duration
Motor insurance plans can also be differentiated based on the duration of the coverage which they offer. The different types of motor insurance plans under this category are as follows –
|Type of motor insurance policy
|Annual third party liability policy
|This policy provides third party liability coverage for one year
|Annual comprehensive policy
|This policy covers both third party liability and damage and theft of the vehicle and runs for one year
|The long term third party policy
|This policy has been made mandatory for vehicles bought on or after 1st September 2018. The policy provides a long term continuous coverage to vehicles. The coverage duration depends on the type of vehicle and is as follows –
Two-wheelers – coverage is for 5 years
Four-wheelers – coverage is for 3 years
|The long term comprehensive policy
|These policies provide a long term continuous coverage and cover both third party liability and damage and theft of the vehicle. The tenure of long term comprehensive plans depend on the type of vehicle and is as follows –
For two-wheelers bought before 1st September 2018 – the policy can be taken for a period of 2 or 3 continuous years
For two-wheelers bought on or after 1st September 2018 – the policy is available for 5 years
For four-wheelers bought on or after 1st September 2018 – the policy is available for 3 years
|These policies are available for vehicles bought on or after 1st September 2018. These policies allow the mandatory third party liability to run for the mandated tenure while the own damage cover is allowed for one year. Bundled plans have different tenures for different types of vehicles. These are as follows –
For two-wheelers – the policy would have 5-year third party cover and 1-year own damage cover
For four-wheelers – the policy would have 3-year third party cover and 1-year own damage cover
These were the different types of motor insurance plans which are available in India. Besides the types of motor insurance plans, you should also know the add-ons which are available under comprehensive motor insurance policies. So, let’s understand what these add-ons are –
Add-ons under comprehensive motor insurance plans
Comprehensive policies allow you to customize and enhance your vehicle insurance policy with available add-ons. These add-ons are optional and can be added by paying an additional premium. Some of the most popular add-ons available with comprehensive motor insurance policies are as follows –
|Name of the add-on
|24*7 assistance is provided by the insurance company 365 days a year in case the vehicle breaks down in the middle of the road and cannot be taken to the nearest garage
|No depreciation is deducted from the cost of the parts which are repaired or replaced in a motor insurance claim. Thus, the claim amount is increased
|The no claim bonus does not become zero even after a claim is made under the motor insurance policy
|If the engine suffers any damage due to water seepage, the damage would be covered by the motor insurance policy
|Personal accident cover for passengers
|If the passengers of the vehicle suffer accidental death or disablement, a lump sum benefit would be paid
|Loss of personal belongings
|If your personal belongings are lost from the vehicle, the financial loss suffered would be covered
|If you lose the keys of the vehicle, the claim would be paid for arranging replacement keys
|The cost of consumables used in repairs of the vehicle is covered. These consumables include oil, lubricants, nuts, screws, etc.
|Return to invoice
|In case of the total damage of the vehicle or theft, the invoice value of the vehicle would be paid as claim
|This add-on covers any damage or theft of the electrical and non-electrical accessories of the vehicle
A motor insurance policy is needed if you want to use your vehicle on Indian roads. So, understand the different types of motor insurance plans available in the market and then choose the policy which provides the most suitable and inclusive coverage for your vehicle so that any financial loss suffered can be duly compensated by the vehicle insurance policy.
Yes, you can switch from a third party policy to a comprehensive policy or vice-versa at the time of renewing your car insurance policy.
No, add-ons cannot be added during the tenure of a running policy. You would have to wait till the renewal date to add add-ons to your bike insurance policy.
The long term third party coverage is mandatory on the car that you would buy. If affordability is an issue, you can buy a bundled policy. Under the bundled policy, long term car insurance coverage would be granted for three years, which is compulsory. However, the own damage cover would be granted for one year after which you would have to renew it. Since the own damage cover would be annual, the premium would reduce and become affordable.
Under comprehensive vehicle insurance policies, if no claim is made in a policy year, the insurance company allows a no claim bonus. This bonus acts as a discount on the premium when the policy is renewed. The bonus starts at 20% and, thereafter, for each subsequent claim-free year, it increases until it reaches a maximum of 50%. However, if any claim is made in any policy year, the no claim bonus becomes nil.
No, under long term motor insurance plans, the third-party premium remains constant over the coverage duration. It does not change even if IRDA changes the premium over the next years.