Car Insurance - Basics Explained

One of the most important things that dealerships recommend during the purchase of the car is car insurance. Not taking car insurance is a grave mistake that can cost people tons of money in the long run. Having said that, it is important to understand car insurance, what are the types of insurances that users can avail and the factors that are considered during the calculation of the premium.

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What is car insurance?

In broad terms, car insurance is a contract. The contract states that the insurance company shall protect you in the event of accident or theft from financial loss.

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Types of Car Insurance

Third-Party Liability only: The benefits include – the cost of any repair/replacement of the third parties' damaged vehicles, cost of hospitalization requirements of the third party, liabilities due to death of third parties.

Collision Damage/Own Damage cover: When someone has this insurance, the cost of repairs that are involved in fixing the damages are covered.

Personal Accident cover: In this case, any treatments that are required for the owner/driver of the car, that cost is covered. This treatment is due to damages that are caused during collisions or accidents.

Zero Depreciation cover: This is an add-on to the insurance policies. If any parts need to be replaced for the car, the cover helps the customer recover the full amount for that.

Comprehensive Car Insurance: This is the complete package of insurance that the customer can get. This package includes third-party liabilities, own vehicle damages, and non-collision damages.

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Factors influencing the payment/premium calculation

• Model and make of the car: The capacity of the engine, the mileage, the maximum speed are all factors considered in this insurance coverage.
• Add-ons: The policy can be enhanced with certain add-ons that the customer might find necessary and choose to add. The addition can significantly affect the total premium that the customer might have to pay.
• No-claim bonus: This is a discount that the customer can avail. It reduces the annual premium massively.
• Geographical location: People living in rural areas might have lesser premiums as compared to urban areas due to less traffic, less busy roads, etc. Less of these factors can mean lesser damages.
• Modifications and upgrades: If there are any modifications made aftermarket, the changes will be reflected in the premium calculations.
• Age of the vehicle: The value of a car decreases as the years pass on. This means newer cars will have higher premium costs as compared to older vehicles that have lesser value in the market.
• Extra investments: Any investments like anti-theft devices can reduce the chances of theft. That could reduce the premium charges and make the coverage cheaper for the user.