How much car insurance do you need?

With the cost of repair and maintenance for cars on an upswing, it's best to have car insurance that compensates you for unforeseen expenses caused by accidents, thefts, or other untoward incidents.

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How much car insurance do you need?

However, if you're wondering 'Am I paying too much for car insurance?', the first question you must answer is how much car insurance do you really need? The short answer is that it depends on the car's Insured Declared Value (IDV). IDV is an equaliser of sorts - it can help you decide whether to go in for a higher premium plan or stick with the minimum car insurance.

Read on to know about the role of IDV in determining your optimal car insurance requirement (and thereby the premium amount). You will also learn about the types of coverage provided under different car insurance policies.

What is IDV? The Insured Declared Value, or IDV, is the actual monetary worth of your car. From the insurance company's viewpoint, it is the maximum sum offered on a car by way of insurance. It equates with the maximum amount payable by the insurer if the car is stolen or damaged beyond repair.

How is IDV calculated? IDV is the value arrived at after deducting depreciation from the vehicle's listed selling price. A vehicle's depreciation is determined by factors such as:

  • Year, make, and model as mentioned in the registration certificate
  • Registration type - whether the car is for individual, corporate or commercial use
  • City or town of registration
  • Cubic capacity (cc) of engine
  • Description of vehicle
  • Ex-showroom price

Once you have these details, the insurer ascertains the depreciation value of the vehicle as per the standard depreciation schedule.

By mutual agreement between the insurer and insured

Importantly, if your car is old, depreciation will be calculated based on its condition evaluated by competent authorities. You can also do it yourself with the help of online ready reckoners by submitting the details of your car. Once the depreciation is calculated, the cost of accessories is added to the listed car price, and the depreciation amount is subtracted from it. This is your car's IDV. The IDV will help you know is minimum car insurance enough for your vehicle or not.

Importance of IDV for car insurance and premium

As mentioned, your car's IDV will decide the maximum compensation you can get in case of a claim. The correct IDV will not only let you get fair compensation but also a reasonable resale price. Do bear in mind that the lower the IDV, the lower the sum insured and premium, and vice versa. So, IDV has a direct and proportionate relationship with both insurance amount and premium.

Types of car insurance policies and coverage

There are three types of car insurance plans available in India. Given below are the classification and details of coverage for each plan:

Third-party insurance It is a basic policy mandated by law under the Motor Vehicles Act and offers protection to the third party in case of injury or death. It does not cover the insured vehicle or owner/driver, though some insurers bundle a personal accident cover under this plan.

Comprehensive plan It is the most extensive plan and offers third-party and own-damage covers.

Third-party coverage includes:

  • Unlimited coverage to the third party in case of injury or death
  • Coverage for damage to third-party property, including other vehicles

Own-damage cover for the insured vehicle includes:

  1. Damages during an accident
  2. In-transit damage while travelling through land, sea, or water transport
  3. Damage due to natural calamities
  4. Damage due to non-natural disasters and incidents such as riots, acts of vandalism, war, strikes, etc.
  5. Damage beyond repair
  6. Theft

Comprehensive plans also offer personal accident cover to the owner/driver.

Add-on While you might be wondering is minimum car insurance enough for your vehicle, here are some useful add-ons that can be customised according to your needs.

  • Zero depreciation cover is popular because it allows full claim without deduction of depreciation
  • Engine protection cover is useful in case of electrical or mechanical damage to the engine, and is not covered under a comprehensive plan
  • Return-to-invoice plan offers compensation of the invoice value in case the vehicle is stolen or damaged beyond repair
  • Personal belongings cover reimburses the cost of personal objects lost in case of car theft or severe damage
  • No-claim bonus cover offers the retention of this bonus even if claims are made during a policy year
  • Personal accident cover applies to co-passengers
  • Roadside assistance covers 24×7 cost of flat tyres, towing, fuel, etc.

Alternative vehicle cover offers reimbursement for the cost of using an alternative vehicle while the insured car is under repair

By calculating your IDV, you will know exactly how much coverage you need, and this will help you select a suitable insurance plan. It will also help you answer the question 'Am I paying too much for car insurance?'. Make sure you #ThinkAhead and go for a comprehensive coverage such as TATA AIG's Auto Secure Private Car Package Policy, which also offers up to 13 add-ons for extended protection!

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