Introduction
Understanding a Car Insurance Policy is essential for every vehicle owner—whether you’re buying a new policy, renewing one, or simply trying to ensure you’re getting the right value for your money. With evolving regulations, digital-first insurance platforms, and a wide range of Car Insurance Policy options in 2025, choosing the right coverage can seem confusing. However, with the right guidance, you can make an informed decision that protects both your vehicle and your finances.
Key Car Insurance Terms You Must Know
Before purchasing car insurance, it’s important to understand the basic terms used in policies. These terms help you interpret your coverage accurately and avoid surprises during claims.
1. Premium
The premium is the amount you pay to the insurer for your car insurance policy. It can be paid annually, semi-annually, or monthly depending on the insurer’s options.
2. IDV (Insured Declared Value)
IDV is the current market value of your car. This is the maximum amount an insurer will pay if your car is stolen or completely damaged beyond repair. Higher IDV increases the premium, while lower IDV reduces it.
3. Deductible
A deductible is the amount you agree to pay from your pocket during a claim.
-
Compulsory deductible: Fixed by the government.
-
Voluntary deductible: You choose to pay more to reduce your premium.
4. NCB (No Claim Bonus)
NCB is a discount offered on your premium for every claim-free year. It can range from 20% to 50%, depending on how many years you haven’t made a claim.
5. Third-Party Liability
This covers damages or injuries caused to others due to your vehicle. It is mandatory under Indian law.
6. Add-ons / Riders
These are additional coverages that enhance your base policy, such as zero depreciation, roadside assistance, and engine protection.
7. Own Damage Cover
Covers damages to your own vehicle due to accidents, fire, natural disasters, or vandalism.
Types of Car Insurance Coverage in India
Understanding different types of policies helps you choose the coverage that fits your needs and budget.
1. Third-Party Car Insurance
This is mandatory for all vehicle owners under the Motor Vehicles Act. It covers:
-
Damage to another vehicle
-
Injury or death of a third party
-
Property damage
However, it does not cover your own vehicle’s damages.
2. Comprehensive Car Insurance
This is the most recommended type of policy because it includes:
-
Third-party liability coverage
-
Own damage coverage
-
Protection from theft, fire, floods, storms, and vandalism
-
Option to add riders or add-ons
Comprehensive insurance provides overall protection and is ideal for new, high-value, and frequently used vehicles.
3. Standalone Own-Damage Insurance
Introduced in recent years, standalone OD policies allow you to combine:
-
A third-party policy from one insurer
-
An own-damage policy from another insurer
This flexibility helps you choose better pricing and benefits.
4. Pay-As-You-Drive / Usage-Based Insurance
In 2025, many insurers offer telematics-based plans where you pay premiums based on:
-
Monthly mileage
-
Driving behaviour
-
Usage frequency
This is great for people who drive less and want to reduce their insurance budget.
Essential Add-Ons to Enhance Your Car Insurance
Add-ons provide valuable protection, especially for new or high-end cars. Here are the most beneficial ones:
1. Zero Depreciation Cover
Ensures you receive full claim amount without deduction for parts depreciation. Highly recommended for cars under 5 years.
2. Roadside Assistance Cover
Offers emergency help such as towing, fuel delivery, flat tyre repair, battery jumpstart, and more.
3. Engine Protection Cover
Protects your engine from damage due to waterlogging or oil leakage—essential in flood-prone areas.
4. Return to Invoice Cover
If your car is stolen or totalled, you get the original invoice value, including taxes and registration charges.
5. Consumables Cover
Covers the cost of consumables like engine oil, nuts, bolts, AC gas, coolant, and brake fluid during repairs.
6. Personal Accident Cover
Provides financial protection in case of accidental injury or death of the owner-driver.
What Factors Decide the Cost of Your Car Insurance?
Premiums vary based on multiple factors. Understanding them helps you evaluate whether your pricing is fair and competitive.
1. Vehicle Model and Type
Premiums for high-end or luxury vehicles are naturally higher due to expensive spare parts and repair costs.
2. Age of the Vehicle
New cars have higher IDV, which increases premiums. Older cars have lower IDV.
3. Location
Urban areas with heavy traffic have higher premiums than rural areas.
4. Add-Ons Chosen
Each add-on increases the premium. Choosing only necessary add-ons helps balance cost and coverage.
5. Claim History
Frequent claims reduce your NCB and increase your next year’s premium significantly.
6. Security Features
Cars equipped with anti-theft devices certified by ARAI may get premium discounts.
7. Fuel Type
Diesel cars generally have higher premiums than petrol cars due to higher repair costs.
How to Choose the Right Car Insurance Policy
To make the best decision, consider these expert recommendations:
1. Assess Your Coverage Needs
A new or high-value car needs comprehensive coverage plus essential add-ons, while an older car may only need a basic plan.
2. Compare IDV Offers
Never choose a policy just because it’s cheap. Extremely low IDV can result in lower claim payouts.
3. Check Claim Settlement Ratio
This indicates how efficiently an insurer processes claims.
4. Evaluate the Add-On Benefits
Pick add-ons based on your usage pattern, driving habits, and geographical risks.
5. Consider Customer Service Support
Good customer service ensures quick claim resolution and policy assistance.
6. Read the Policy Document Carefully
Always review inclusions, exclusions, and claim procedures.
Conclusion
Choosing the right car insurance policy becomes much easier when you understand the terminology, coverage options, and cost factors. A well-structured policy protects your vehicle from unexpected risks and offers financial stability during emergencies. Whether you’re buying a new policy or renewing an existing one, always focus on value, transparency, and reliable customer support.
For a trusted, seamless, and customer-friendly insurance experience, many policyholders prefer platforms like Square Insurance, known for offering clear comparisons, expert guidance, and reliable claim support.
Frequently Asked Questions
1. What is the most important coverage in car insurance?
Both third-party liability and own-damage coverage are essential. Third-party is mandatory, while own-damage offers financial protection for your car.
2. How is the car insurance premium calculated?
Premiums are calculated based on IDV, car type, location, add-ons, claim history, and vehicle usage.
3. Is comprehensive car insurance mandatory?
No, but it is highly recommended because it covers both your vehicle and third-party liabilities.
4. Should I buy add-ons for my car insurance?
Add-ons enhance protection. Choose them based on the car’s age, usage, and risk exposure.
5. Can I transfer NCB to a new car?
Yes. NCB is linked to the policyholder, not the vehicle, allowing you to transfer it to your next car.
