The subject of insurance can be a bit daunting, and it?s easy to pick a bad policy just because it?s the one that was easily available. Read our detailed breakdown of car insurance and pick what?s best for you, your car and your wallet

What is car insurance?

It is necessary by law to have a car insured and it?s an offence to drive an uninsured car on the road. Insurance can be considered a financial cushion, so in the event of an accident, the insurance company pays for the damages so that you don?t have to. You pay a small amount of money?called a premium?to the insurance company, and in return, it promises to take care of any expenses that may arise due to natural calamities like fire, earthquakes or landslides, or man-made calamities like theft, vandalism or accidents. Here in India, insurance policies?the contract between you and the insurance company?last for a period of one year, and must be renewed annually by paying the premium. The policy also protects you against liability to any third party that may be involved.

Kinds of car insurance…

There are two kinds of insurance policies available, third party and comprehensive. Third party insurance, as the name suggests, covers any claims made by any other parties involved in the accident, but that?s it. It will not cover any damage to your own car. Comprehensive insurance, on the other hand, covers both you and the third parties, and is therefore clearly the better bet?but, understandably, the premium is higher. Still, think how much you?ll save on repairs if your car is damaged more than the other person?s. You can also choose to get add-on covers like unnamed passenger personal accident cover, which pays compensation to the family of your passengers in case of a fatality.

And the premium amount…

The amount you pay as premium is determined by the IDV (insurer declared value). This is the current worth of the car, and is recalculated every time you renew your policy. The IDV, and consequently the insurance premium, is dependent on the current list price of the car, adjusted against depreciation in value. Ideally, the IDV amount should come down by around 10% annually, depending on which insurance company you use. Then there are those add-on covers that you can opt for, which again will increase your premium. The premium amount also depends on the amount of voluntary excess you have chosen to bear.

What sorts of discounts are available on the premium?

When renewing your policy, it pays if you haven?t made any claims on your previous policy, as insurance companies will take this into account and lower your next premium. This is called a NCB (no claim bonus). What?s more, the NCB is attached to the car and not the insurance company, so be sure to carry it forward if you chose to switch to another company for your next policy. Also, if you?re buying a second-hand car, the previous owner?s NCB gets passed on to you.

What is excess and what are the types?

Although the insurance company pays for most of the damages, there is an amount that you have to pay. This is called excess and it is of two types. Compulsory excess is determined by the car?s engine size and is a permanent part of the insurance. Additionally, you can opt to bear some of the cost of damages caused in the accident, in exchange for a lower premium?this is called voluntary excess. Our recommendation is not to volunteer for a higher excess just to get a discount; in case of an accident, it may come back to bite you.

Time to make a claim?

In the event of an accident, the first thing to do is to make sure everybody is safe. File an FIR with the police if you have to and if possible click pictures of the damage to back up your claim. Next, get in touch with your insurance company representative and inform them of the accident; you may need to fill in a few forms as well. Next, get your car to a workshop (some insurance policies include towing if the car is undriveable). You can then choose to make a cashless claim, which means the insurance company will send a representative to inspect your car and settle its end of the bill directly. Once the damage is assessed and a go-ahead received from the insurance company, the repair work can begin. However, this is subject to the availability of the inspector, and could delay the repair. If you choose to pay for the repairs and file the claim afterwards, keep a record of all the expenses you?ve incurred, including repair bills and the FIR. This is your proof of loss and the insurance company may ask for it.

Next, you need to make the claim itself. Ready a statement of claim?this is the communication from you to the insurance company expressing the amount of reimbursement. Our recommendation is, if the amount isn?t too big and you think you will be able to bear it, don?t make a claim. This will help you retain your NCB the next time you renew the insurance policy. The documents required to make a claim are the original insurance policy, registration and the vehicle owner?s licence, as well as that of the person driving at the time, if someone else.

In case of a total loss

A total loss is declared when the cost of repairing the car is more than 75% of the IDV; although this figure may vary from one insurance company to another. In this case, the car is written off and the insurance company simply pays you the IDV. To claim the total loss, ownership of the car has to be transferred to the insurance company. You have to submit the original registration, duplicate keys and an NOC from the RTO, just as you would if you were selling the car. Once the formalities are completed, it may take some more time for the reimbursement to arrive. You will need an FIR from the police station closest to the place of mishap in the case of a total loss.

Policy renewal

The insurance policy is valid for a year and should be renewed a sufficient while before the expiry date. The insurance companies will usually remind you a couple of months in advance. Even if it is renewed with months to go, it will usually take effect from the date the current one expires. If not renewed in time, the policy will be void and you may need to go in for a new one. You also stand to lose any NCB you were eligible for. The actual insurance policy certificate takes some time to process, and you will be given a cover note which is valid for a period of two months as proof of insurance. It should, however, be replaced by the actual certificate as soon as possible.

Shopping online

These days you can buy just about anything online, and now that includes car insurance as well. Insurance companies have their own websites and it?s easy to get a quote from any one of these. There are also a lot of insurance portals like policybazaar.com and easyinsuranceindia.com?sites that will find you the best quote from among a vast number of insurance companies. The advantage is that you can easily compare quotes from different insurance companies in one place and decide which one suits you best. The advantage of buying online is that you don?t have to do any running around, yet you will still be paid a visit by the insurance agent to finalise the renewal. The one downside is that even if you are just browsing for the best quote, you will still get a lot of calls since you have to give your telephone number for authentication purposes.