Types of Vehicle Insurance Policies You Must Know

An insurance plan for vehicles is both a mandatory requirement as well as beneficial for the insured. There are various types of vehicle insurance plans available to match the requirements of different policyholders. These types of vehicle insurance policies are categorized on the type of coverage they provide and the vehicles insured. However, having at least insurance that safeguards against damage due to third parties is mandatory. According to The Motor Vehicles Act, 1988, every vehicle on the road must have valid third-party liability insurance.

Types of Vehicle Insurance

Let’s classify the different types of vehicle insurance plans according to coverage of the insured vehicle. This shall help to understand the variety of policies for innumerable vehicles like for private and commercial purposes. Similarly, the type of coverage in each kind of policy is different.

A. Types of Vehicle Insurance Based on Coverage

There are three main coverage-based types of vehicle insurance. However, several add-ons can be clubbed with basic policies. The additional insurance plans also raise the premium amounts but provide extra protection. These are as follows:

1. Third-Party Insurance

Reiterating the fact that this policy is mandatory by law and there is no choice for vehicle owners not to have this policy. Whether the vehicle is for personal or commercial use, or if it is a two-wheeler, four-wheeler, or other large vehicles, it is a must for all. As the name suggests, this type of vehicle insurance policy safeguards against the damage or injury caused by a third party. You pay for the losses of a third party when you are at fault and the other person claims. Similarly, you can claim if a third party damages your vehicle.

The premium of a third-party vehicle insurance policy is usually lower than others. This does not cover the accidental injuries/damages caused by the own fault of the owner/driver or theft. Any person other than the insured and the insurer is the third party. Whereas, the insured and the insurer are first and second parties respectively.

2. First Party Policy or Own Damage Insurance

This type of vehicle insurance policy covers the loss that occurs due to the owner’s or first party’s liability. It could be theft (theft of the vehicle or parts of the vehicle), natural causes like fire, weather conditions, etc., and man-made problems like vandalism, riots, and the like. This policy can also cover up the costs of repair or the loss of belongings in case of accidents where no third party is at fault. It can cover the collision against stationary objects or accidents on roads.

3. Comprehensive Damage Insurance

This vehicle insurance policy is considered to be an ideal one. It is because it has double benefits of coverage for both the first party and third party liability. This policy includes the financial cover for damage due to the third party on-road as well as its own damage. It is a comprehensive and inclusive policy. Policyholders often club additional policies with it that offer in-depth protection against various kinds of damage and end-to-end coverage. At the same time, it also has a deductible and a higher premium.

4. Additional Policies

The above three basic and common policies are applicable for all kinds of vehicles. Other than these, certain add-on policies can provide additional coverage. Some of them are:

A. Collision Insurance

It is a type of vehicle insurance policy that provides cover for the damage that occurred because of a collision with a stationary object or another vehicle on the road. This is somewhat similar to first-party or own damage insurance where it can cover damage from potholes or the rolling of the vehicles. However, it does not cover car breakdown or damage due to wear and tear.

B. Zero Depreciation Policy

ZD is another common policy that is policy buyers often take over first and comprehensive policy. ZD Insurance covers the depreciation cost of the vehicle. All plans that offer full coverage actually offer the IDV (Insured Declared Value) of the vehicles. IDV is the depreciated value. Gap Insurance Policies or Depreciation Covers are also similar types of vehicle insurance. They cover the gap between the actual cost and the current market value of the vehicle at the time of the claim.

C. Consumable Cover

This is a type of vehicle insurance cover for consumable items like washers, AC gas, bearings, engine oil, fuel filter, etc.

D. Glass Insurance

This policy (under car insurance) covers the costs of damage to the glass of rear/side windows and sunroofs.

E. Engine Protector Cover

Engine Protector Cover is insurance for the expenses that you incur on the repair of the engine post water ingression or oil/lubricant leakage.

F. Roadside Assistance

As the name suggests, it is a type of vehicle insurance plan that covers the expenses incurred for on-site repairs. It covers the costs when there are puncture/flat tyres, mechanical or electrical failure, car doors locked inside/loss of keys, etc. It could cover for towing of cars to the nearest garage as well

G. Key Loss Add-on Cover

It compensates for the loss of keys.

These are a few additional insurances among which Zero depreciation and Consumable Cover are usually in demand. However, nowadays several insurance providers come with various additional types of vehicle insurance add-ons. For example, Tyre Damage Add-on, Daily Allowance Add-on, Personal Laptop, and Mobile Cover Add-on, etc.

B. Types of Vehicle Insurance Based on Vehicle Insured

There are so many kinds of motor vehicles and they form the categories for types of vehicle insurance policies. They are as below:

1. Commercial Vehicle Insurance

This type of vehicle insurance is for vehicles that are used for commercial purposes like transportation of passengers, goods, and services. Commercial vehicle insurance is a customized cover for damages and losses to commercial vehicles and their owners. If your business owns one or more vehicles, you need to have commercial vehicle insurance. Also, if your business needs motor vehicle service like school buses, regular cab service, deliveries using motor vehicles, and so on. It normally has a higher premium than personal vehicle insurance policies that are meant for private use.

Depending on the size or carriage capacity, there are two types of vehicle insurance policies:

  • Light Commercial Vehicles (LCVs) or Passenger Carrying Vehicle Insurance Policy – This type of vehicle insurance covers passenger-carrying vehicles like buses, taxis, bikes, etc. It may also cover light good carrying vehicles like autorickshaws, minibuses, or vans
  • Heavy Goods Vehicles (HGVs) Insurance Policy covers heavy vehicles transporting goods. For instance, trucks, lorries, or trailers
2. Personal/Private Vehicle Insurance

This type of vehicle insurance policy covers privately owned vehicles be it two-wheelers like bikes and scooters or four-wheelers like cars, vans, jeeps, etc. The policy covers the insured vehicle and the policyholder. Personal vehicle insurance policies are usually cheaper than commercial vehicles because they carry fewer risks. Also, the damage cost is usually lesser than heavy vehicles or even light commercial vehicles.

Every commercial or personal vehicle must mandatorily have third-party insurance. They may also take the first party insurance or a comprehensive policy that includes both kinds of coverage. The other add-on policies depend on the choice of the policyholders. Commercial vehicles often take theft and fire policy adding to the third party liability. However, a comprehensive policy is suggested as it safeguards from theft, fire, third party, accidents due to own faults, collisions, etc.

C. Type of Vehicle Insurances Based on Duration

All third-party, first-party, and comprehensive policies whether for commercial or personal vehicles come with different validity. Once the valid time duration ends, the owner needs to renew the policy or buy a new insurance policy. The tenure of insurance can vary from a year to 3 years to 5 years. Thereby, there are various types of vehicle insurance based on the time period. For instance, annual third-party policy for a year and long-term third-party policy for 3 or 5 years. Likewise, there is an annual or long-term comprehensive policy.

There are also Bundled Policies that apply to vehicles bought on or after September 1, 2018. In this type of vehicle insurance, the mandatory third-party insurance is for the long term whereas the first party policy is valid for a year. The first party insurance will need a renewal depending on the choice of the owner or policy buyer. However, third-party liability will be valid for 5 years for two-wheelers and 3 years for four-wheeler vehicles.

Wrapping it up:

Vehicle insurance is a necessity, both by the law as well as for the protection of the vehicle and the owner. It safeguards against financial burden due to the possible contingencies and damages arising from it. Paytm offers various kinds of insurance policies ranging from medical and vehicle to accidental coverages. You can go for a quick and easy online purchase of vehicle insurance for your car or bike. Different types of vehicle insurance plans are available for you to choose from. You can also compare the coverage type and time and can check the premiums, deductibles and go for additional covers.

FAQs
I have third-party insurance. Can I switch to a first-party or comprehensive policy?
Yes, you can switch to a first-party or comprehensive policy if you already have third-party insurance when you renew or cancel the existing one. However, you can always add a new policy to an existing one. Thus, add the first-party plan to the third-party liability policy.
Do long-term vehicle insurance plans have higher premiums?
  • It depends on the type of vehicle insurance policy if long-term insurance plans have higher premiums. It may have a higher premium because it covers you for a longer time. However, vehicle insurance policies generally raise the premium on a yearly basis. Having a long-term plan can help you save a 20-30% hike on annual renewal.
  • Also, you will be covered for longer tenure and avoid the hassle of renewing the policy yearly.
Do third-party premiums change in the long-term vehicle insurance policy?
No, third-party premiums do not change in the long-term vehicle insurance policy. It remains constant even if IRDAI changes the premiums for next year.
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