Basics of auto insurance

businessgyan's picture

One of the important components or factors in the whole chain of buying, selling and using cars is the area of insurance. Under the Motor Vehicles Act, all motor vehicle owners must have insurance cover. In this article, we outline the various terms that should be covered while buying insurance for the car.


Coming to the type of insurance one takes, on the basis of the risks covered, Motor Insurance is divided into two basic types; Third Party Insurance and Comprehensive Insurance.


Third Party insurance covers Personal Injury and Property damage. Personal Injury includes:


1.  Liability for death or injuries to third parties - this means that you are insured against death or injury (caused by your vehicle) to pedestrians, occupants of other vehicles, and outsiders other than passengers, for unlimited amounts. Passengers of private vehicles and pillion riders are also deemed covered. 


2.  Liability to employees connected with operation of the vehicle- this means you are insured against death or injury (caused by your vehicle) to the vehicle's drivers, cleaners, conductors, coolies...employees used in the operation of the vehicle. 


3.  Liability to passengers carried in the vehicle for hire or reward - this means that as owner of a taxi, bus or auto-rickshaw, you are insured against death or injury (caused by your vehicle) to the passengers. 


Property damage covers the vehicle itself and you are insured against various damages that occurs to your vehicle on account of accidents and other instances.


Comprehensive Insurance covers all the risks covered in the Motor Vehicles Act (as above) , plus loss or damage caused to the vehicle due to:


1.        Accident
2.        Fire, Explosion, self-ignition, lightning
3.        Burglary, house-breaking, theft
4.        Riots & strikes
5.        Earthquakes
6.        Flood, typhoon, hurricane, storm, cyclones
7.        Malicious acts
8.        Terrorism 
9.        Transit by rail/road, air, waterways
10.     Also included is the towing charge (up to Rs.1, 500/- for private vehicles and Rs.2,500/- for commercial vehicles) incurred due to accident to the vehicle.


However, do note that there are certain exclusions to comprehensive insurance cover like loss or damage caused due to; Driver being under intoxication, vehicle being driven by a person not holding an effective, valid license, damage to tyres (unless the vehicle is also damaged) and wear & tear, mechanical breakdown.


Another option for vehicle owners is to pay additional premium for additional benefits like;


1. Wider cover on liability to drivers, cleaners, conductors, i.e. under Fatal Accidents Act, W.C. Act & Common Law
2. P.A. benefits to owner of vehicle, other family members on named or unnamed basis driving or travelling in the vehicle.
3. P.A. benefits to others travelling in the vehicle.
4 .Increased property damage cover: This extension will not cover goods carried on the vehicle.


National Insurance, United India Insurance and New India Assurance are the three major players in the market.


Issue BG26 May03