Car insurance buying guide: 5 key terms you should understand

Car insurance is a must for every car owner in India, but it is also one of the most confusing parts of ownership. Policy documents are full of technical words that can be hard to understand, especially if you are buying insurance for the first time. Still, knowing a few basic terms can go a long way in helping you choose the right cover and avoid unpleasant surprises at the time of a claim. Here are five common car insurance terms explained in simple words.

Car insurance terms you should know about:

-Deductible

One term you will come across often is deductible. This is the amount you agree to pay from your own pocket every time you raise a claim. For example, if your deductible is Rs 500 and the repair bill comes to Rs 2,000, you pay the first Rs 500 and the insurer covers the remaining Rs 1,500. Choosing a higher deductible is important for premium calculation as it usually lowers your premium, while a lower deductible increases it. It is a balance between saving money upfront and paying more during a claim.

In India, every car insurance policy has a mandatory deductible fixed by IRDAI. This is usually Rs 1,000 for cars under 1,500 cc and Rs 2,000 for cars above 1,500 cc. On top of this, insurers may offer a voluntary deductible, which is what lowers the premium if you opt for a higher amount.

-Premium

Another important word is premium. This is the amount you pay to the insurance company to keep your policy active. It can be paid annually or in installments. The premium depends on several factors such as your age, driving history, city, type of car and even how old the vehicle is. Simply put, the higher the risk, the higher the premium. Knowing what affects your premium helps you understand why two people with similar cars may pay different amounts.

-Liability coverage

Liability coverage, also known as third-party insurance, is a term every car owner should be familiar with, as it is mandatory by law in India. This cover protects you financially if you cause damage or injury to someone else. It includes bodily injury liability, which takes care of medical expenses and related costs, and property damage liability, which pays for damage caused to another person’s vehicle or property. However, it does not cover damage to your own car.

-Comprehensive coverage

Comprehensive coverage is optional, but it is strongly recommended, especially for new or expensive cars. This type of insurance protects your vehicle against damages that do not involve a collision. This includes theft, fire, floods, earthquakes, vandalism and even damage caused by animals. If your car is financed or leased, insurers or lenders often make comprehensive cover compulsory.

-Collision coverage

Lastly, there is collision coverage. This part of the policy pays for repairs to your car if it is damaged in an accident, regardless of who is at fault. It comes into effect if your car collides with another vehicle, hits an object, or even overturns. Although it isn’t mandatory, collision cover is especially helpful for newer cars, where repair bills can be expensive. In India, however, this cover is usually not offered on its own and is included as part of a comprehensive motor insurance policy.