Your vehicle is probably one of the most expensive things you own, and one of the most exposed. A collision on a wet road, a car parked through a flood, a stolen bike, or an accident that injures someone else can each cost lakhs of rupees in minutes. Motor insurance exists to move that cost from your savings to your insurer.
It is also the law. In India, every motor vehicle on a public road must carry at least third-party insurance. Many owners stop there, or simply renew whatever the dealer chose, without knowing what they have bought, what is missing, or what a claim will actually look like.
This guide explains motor insurance in plain language: what it is, the different types, what it covers and what it does not, the key terms (IDV, NCB, deductible), add-ons, how premiums are worked out, how to choose a policy, how to claim, and what to do at renewal or when you sell. The people and amounts in the examples are illustrative, not real cases.
In this guide
- What is motor insurance?
- Types of motor insurance: which one do you need?
- What does motor insurance cover?
- What does motor insurance not cover?
- Key terms: IDV, NCB, deductible and depreciation
- Add-ons: which are worth buying?
- How is your premium calculated?
- How to choose the right policy
- How to make a claim
- Common motor insurance mistakes
- Renewal and ownership transfer
1. What is motor insurance?
Motor insurance is a contract between you and an insurance company. You pay a premium, and the insurer agrees to pay for specified losses involving your vehicle. It applies to private cars and two-wheelers as well as auto-rickshaws, taxis, goods carriers, buses and other commercial vehicles.
A motor policy can protect you against three different kinds of loss:
- Your vehicle (own damage): accidents, fire, theft and natural calamities.
- Other people (third-party liability): injury, death or property damage that your vehicle causes to someone else.
- You (personal accident): accidental death or disability of the owner-driver.
Is motor insurance compulsory? Yes. Section 146 of the Motor Vehicles Act, 1988 requires every vehicle on a public road to be insured against third-party risks. Under Section 196, driving or allowing someone to drive an uninsured vehicle can mean up to 3 months in prison, a fine of ₹2,000, or both for a first offence, and up to 3 months, ₹4,000, or both for a repeat offence (Vikaspedia, citing a PIB release).
The fine is the smaller problem. If an uninsured vehicle injures someone, you can be held personally liable for the compensation, and a serious injury or death claim can run into lakhs.
2. Types of motor insurance: which one do you need?
There are three main types of policy, and the difference between them decides what you are paid for.
| Type | What it covers | What it does not cover | Best suited for |
|---|---|---|---|
| Third-party (liability only) | Injury, death or property damage you cause to others, plus owner-driver personal accident cover | Any damage to your own vehicle | Meeting the legal minimum, or very old vehicles of low value |
| Standalone own-damage | Damage to or loss of your own vehicle from accidents, fire, theft and natural calamities | Liability to third parties, which needs a separate third-party policy | Owners who already hold a valid third-party policy |
| Comprehensive (package) | Own damage, third-party liability and owner-driver personal accident in one policy | Exclusions and depreciation, unless you add the right add-ons | Most owners, especially of newer, financed or costly vehicles |
A note on new vehicles. Since September 2018, insurers have sold new cars with 3 years and new two-wheelers with 5 years of third-party cover, following a Supreme Court order (Business Standard). Since August 2020, the own-damage part can only be bought one year at a time (Autocar India). Check your invoice to see exactly what your dealer included, and when each part expires.
Commercial vehicles such as taxis, goods carriers and buses are insured under separate commercial policies, which also deal with passengers, goods carried and paid drivers. If you use a private vehicle for business, tell your insurer, because the wrong usage category can lead to a rejected claim.
3. What does motor insurance cover?
A comprehensive policy protects three things at once: your vehicle, the people and property you might harm, and you as the owner-driver.
Damage to your own vehicle
- Accidents and collisions
- Fire, explosion, self-ignition and lightning
- Theft of the vehicle
- Natural calamities such as floods, storms, cyclones, earthquakes and landslides
- Riots, strikes, malicious acts and terrorism
Liability to other people (third party)
- Death or bodily injury to a third party. This cover is unlimited, and the compensation is decided by the Motor Accident Claims Tribunal or a court.
- Damage to a third party’s property. This is capped, at ₹7.5 lakh for cars and typically a lower amount for two-wheelers, so check your policy (IFFCO-Tokio).
You, the owner-driver
- Compulsory personal accident cover of ₹15 lakh for death or permanent disability, for an individual owner who holds a valid driving licence. IRDAI raised it to ₹15 lakh in 2018 and, from 2019, allowed one standalone policy to cover several vehicles. If you already hold a personal accident policy of at least ₹15 lakh covering death and permanent disability, you need not buy it again (Business Standard).
Example: Suresh’s car skids on a wet road and hits a parked scooter and a shop shutter. The repair to his car falls under own damage. The scooter and shutter fall under third-party property damage. The personal accident cover pays only if he dies or is permanently disabled, so his hospital bills are a matter for his health insurance, not his motor policy.
4. What does motor insurance not cover?
Most disputed claims trace back to an exclusion the owner never read. These are the ones that catch people out:
- Wear and tear, ageing and breakdown. Mechanical or electrical failure that is not caused by an insured event is not covered.
- Consequential loss. If your engine is damaged because you drove or restarted the car in flood water, insurers commonly treat it as consequential loss and reject it, unless you hold an engine protection add-on.
- Drunk or drugged driving. A claim can be rejected if the driver was under the influence. The owner-driver personal accident cover has the same exclusion.
- No valid licence. The driver must hold a licence valid for that class of vehicle.
- Wrong use. Using a private vehicle for hire, racing or speed testing falls outside the policy.
- Contractual liability, war and nuclear risks.
- Tyres and tubes, unless the vehicle is damaged at the same time.
- A lapsed policy, or one not transferred to the new owner. There is no cover at all in these cases (see mistake 10 and section 11).
Depreciation reduces most claims too. On a standard policy, insurers deduct depreciation on replaced parts. For example, the wording of one insurer’s private car policy deducts 50% on rubber, nylon and plastic parts, tyres, batteries and airbags, and applies a schedule by vehicle age to other parts (ICICI Lombard policy wording). A zero-depreciation add-on removes most of this, which is why it is the most popular add-on (see section 6).
How to avoid surprises: Ask for the policy wording, not just the brochure, and read the exclusions page before you pay. Do it again whenever you add a new driver or change how you use the vehicle.
5. Key terms: IDV, NCB, deductible and depreciation
Four terms decide how much you pay for a policy and how much you get back at claim time.
IDV (Insured Declared Value). IDV is the sum insured on your vehicle. It starts from the manufacturer’s listed selling price, adjusted for depreciation by vehicle age. It is the most the insurer will pay if your vehicle is stolen or declared a total loss, and a vehicle is treated as a constructive total loss when repair and retrieval costs exceed 75% of its IDV.
| Age of vehicle | Depreciation applied to arrive at IDV |
|---|---|
| Up to 6 months | 5% |
| 6 months to 1 year | 15% |
| 1 to 2 years | 20% |
| 2 to 3 years | 30% |
| 3 to 4 years | 40% |
| 4 to 5 years | 50% |
| Over 5 years | Agreed between you and the insurer |
Source: General Insurance Council IDV calculator
Example: A car has a manufacturer’s listed price of ₹8,00,000 and is 2.5 years old. Depreciation of 30% gives an IDV of ₹5,60,000, which is the most you can receive if it is stolen. Lowering your IDV to cut the premium also lowers that payout, so do it only knowingly.
NCB (No Claim Bonus). A discount on the own-damage part of your premium for each claim-free year: 20% after one year, 25% after two, 35% after three, 45% after four and 50% after five or more (Tata AIG). The rules to remember:
- It applies only to the own-damage premium, not the third-party premium. On a ₹10,000 own-damage premium, a 35% NCB saves you ₹3,500.
- It belongs to you, not the vehicle. You can carry it to a new vehicle or a new insurer with an NCB certificate or declaration, but it does not pass to the person who buys your old vehicle.
- A claim resets it to zero unless you hold an NCB protector add-on, and you lose it if you do not renew within 90 days of expiry.
Deductible. The part of each claim that you pay yourself. A compulsory deductible applies to every policy. You can also choose a voluntary deductible to lower your premium, but you then pay more out of pocket when you claim.
Depreciation. Insurers deduct the value lost through age from the price of replaced parts. A zero-depreciation add-on waives most of this deduction.
6. Add-ons: which are worth buying?
Add-ons extend a comprehensive policy for an extra premium, and that premium attracts GST too. Buy the ones that match how and where you drive, and skip the rest.
| Add-on | What it does | Worth it when |
|---|---|---|
| Zero depreciation | Pays for replaced parts without deducting depreciation | You own a new or fairly new vehicle. Most insurers offer it only for newer vehicles |
| Engine protection | Covers engine and gearbox damage from water ingress or oil leakage, normally excluded as consequential loss | You drive in flood-prone or waterlogged areas, which includes many parts of Kerala in the monsoon |
| Return to invoice | Pays the original invoice value, including taxes and registration, on theft or total loss, instead of the lower IDV | Your vehicle is new, financed or costly |
| Roadside assistance | Towing, flat tyre, battery, fuel and minor on-the-spot repairs | You drive long distances or own an older vehicle |
| Consumables cover | Pays for nuts, bolts, oil, coolant and similar items used in repairs | You repair at authorised workshops, where these appear on the bill |
| NCB protector | Keeps your No Claim Bonus after one claim in a policy year | You have built up several years of NCB (Tata AIG suggests 3 or more years) |
Check the conditions of every add-on: the age limit for the vehicle, the number of claims allowed per year, and what is excluded. An add-on you cannot actually claim under is wasted premium.
How to choose: Start with zero depreciation and engine protection if they fit your vehicle and area, then add others one by one. Ask your advisor to show the premium for each add-on separately so you can see what it costs.
7. How is your motor insurance premium calculated?
Your premium has two parts: a fixed third-party premium and a market-priced own-damage premium, with GST added on top.
- Third-party premium. It is set by the regulator according to vehicle type and engine capacity, so it is the same whichever insurer you choose.
- Own-damage premium. This is where insurers differ. It depends on the IDV, the vehicle’s age, make, model and variant, fuel type, your city or RTO zone, your claim history and NCB, the add-ons you choose, and any voluntary deductible.
- GST. Motor insurance premiums generally attract 18% GST. The September 2025 GST exemption covered only individual life and health policies, not motor (Department of Financial Services, PB Partners). Check the GST line on your quote, because some commercial policies are treated differently.
Example: A comprehensive policy has an own-damage premium of ₹8,000, a third-party premium of ₹2,500 and a zero-depreciation add-on of ₹1,500. The total before tax is ₹12,000. GST at 18% adds ₹2,160, so you pay ₹14,160.
Legitimate ways to lower your premium
- Build your NCB, and think twice before claiming small repairs, because a claim resets it to zero.
- Choose a sensible voluntary deductible, knowing you will pay that much on every claim.
- Compare quotes for the same IDV and the same add-ons, so you are comparing like with like.
- Drop add-ons you will never use.
- Ask whether your insurer gives a discount for approved anti-theft devices or automobile association membership.
- Renew on time so you do not lose NCB.
Savings that backfire: Understating your IDV lowers your payout. Hiding modifications such as a CNG kit, or declaring commercial use as private, can lead to a rejected claim.
8. How to choose the right motor insurance policy
Use these steps in order. They take about an hour and can save you lakhs.
- Decide the type of cover. Comprehensive suits most owners. Third-party only makes sense when the vehicle is old and low in value, or when you hold a separate own-damage policy.
- Set a realistic IDV. Compare the insurer’s figure with the General Insurance Council’s IDV calculator, and avoid lowering it just to cut the premium.
- Pick add-ons for your use. Match them to your vehicle’s age, your roads and your area (see section 6).
- Compare insurers on more than price. Look at claim experience, how quickly cashless approvals come through, and whether the cashless garage network includes workshops close to your home and the service centre you actually use.
- Disclose accurately. Declare modifications, previous claims, your NCB and how you use the vehicle. Wrong declarations are a common ground for rejection.
- Read the policy wording. Check the exclusions, the deductible and the deadline for informing the insurer of a claim.
- Check the policy schedule. Confirm your name, registration number, chassis and engine numbers, IDV, add-ons and expiry date. Errors here slow down claims.
- Save a digital copy and note the renewal date in your phone calendar, a few weeks ahead of expiry.
9. How to make a motor insurance claim
The steps you take in the first hour after an accident often decide how smooth the claim will be.
After an accident
- Make the scene safe, and call the police if anyone is injured or another vehicle or property is involved. Do not admit fault at the scene.
- Take photos and videos of the damage, the location and the other vehicles, and note down names, numbers and registration plates.
- Inform your insurer straight away through its helpline or app. Check the policy for the notice period, because late intimation is a common reason for disputes.
- File an FIR for theft, third-party injury or death, major damage or riot-related loss.
- Do not repair the vehicle until the insurer’s surveyor has inspected it or approved the repair. If your car is stranded in floodwater, do not start the engine. Have it towed instead.
- Submit the claim form with your policy copy, registration certificate, driving licence, photos, repair estimate and the FIR where applicable.
- Choose between cashless and reimbursement. At a network garage, the insurer pays the garage directly and you pay only your deductible and any items not covered. At a non-network garage, you pay first and claim the bills back.
Theft claims. File the FIR at once, inform your insurer, and hand over the documents and keys it asks for. The insurer usually settles at the IDV once the police close the case as untraced, which can take time.
Third-party claims. If someone claims compensation or sends a legal notice, forward it to your insurer immediately. Do not settle privately without the insurer’s consent, because the policy lets the insurer handle the defence.
If your claim is rejected or reduced: Ask for the reasons in writing, with the policy clause cited. Raise a grievance with the insurer, and if you are still not satisfied, escalate to IRDAI’s Bima Bharosa portal or the Insurance Ombudsman.
10. Common motor insurance mistakes
These eight mistakes account for a large share of lapsed covers, rejected claims and overpaid premiums.
- Renewing late. Motor policies do not give you a grace period to stay covered. After expiry your vehicle is uninsured, you risk the fine under Section 196, and if more than 90 days pass you lose your NCB. Renew before the expiry date.
- Buying third-party only for a valuable vehicle. It satisfies the law but pays nothing for repairing your own vehicle or replacing it after theft.
- Lowering the IDV to save premium. The saving is small, and the cost is a smaller payout on theft or a total loss.
- Claiming for every small repair. A claim resets your NCB to zero. For a minor scratch, compare the repair cost with the discount you would lose.
- Hiding modifications, commercial use or earlier claims. Wrong declarations are a classic ground for rejection.
- Repairing before informing the insurer. The surveyor needs to see the damage, and unapproved repairs can mean a reduced or rejected claim.
- Not transferring the policy after buying a used vehicle. The own-damage cover does not pass to you until the insurer endorses it (see section 11).
- Accepting the dealer’s default policy without comparing. You are free to choose your insurer, so compare cover, add-ons and claims support before you accept the one the dealer offers.
11. Renewal and ownership transfer
Two moments cause the most avoidable trouble: the day your policy expires, and the day a vehicle changes hands.
Renewal
- Renew before the expiry date. After expiry the vehicle has no cover, and the insurer may ask for an inspection before it renews.
- You keep your NCB only if you renew within 90 days of expiry (Tata AIG).
- You can switch insurers at renewal and carry your NCB across with your NCB certificate or a declaration. Do this before the old policy expires, not after.
- At every renewal, review the IDV, add-ons, how you use the vehicle and the NCB shown on the quote.
Selling or buying a used vehicle
- Under Section 157 of the Motor Vehicles Act, the transfer of the policy to the new owner must be applied for within 14 days of the ownership change. In that window only the third-party cover extends to the buyer automatically. The own-damage cover does not pass to the buyer until the insurer endorses the policy (Zurich Kotak).
- If you are buying, apply to the insurer with the updated registration certificate, the existing policy, your ID proof and the sale documents.
- NCB stays with the seller. If you are selling, get an NCB certificate from your insurer to use on your next vehicle. If you are buying, you cannot inherit the seller’s NCB.
Frequently asked questions
Is motor insurance compulsory in India?
Yes. Every vehicle on a public road must have at least third-party insurance under the Motor Vehicles Act, 1988. Driving without it can mean a fine of ₹2,000, up to 3 months in prison, or both for a first offence, and ₹4,000 for a repeat offence.
What is the difference between comprehensive and third-party insurance?
Third-party insurance covers only your liability to others and the owner-driver’s personal accident cover. Comprehensive insurance adds cover for damage to your own vehicle from accidents, fire, theft and natural calamities.
What is IDV and why does it matter?
IDV, or Insured Declared Value, is the sum insured on your vehicle. It is the most you can receive for theft or a total loss, and it also influences your premium.
What happens if my motor insurance expires?
Your vehicle is uninsured from the day it expires, and driving it is an offence. If you renew within 90 days you can keep your NCB, but the gap itself stays uncovered.
Does NCB transfer if I sell my car?
The NCB belongs to you, not the car. Get an NCB certificate from your insurer and use it on your next vehicle or with a new insurer. The buyer of your old car cannot use it.
Is GST charged on motor insurance?
In most cases, yes, at 18%. The September 2025 exemption applies only to individual life and health insurance, not motor. Check the GST line on your quote.
Does my policy cover someone else driving my car?
Most private car policies cover any person driving with your permission who holds a valid driving licence, but read the driver clause in your policy. The personal accident cover applies only to you, the registered owner-driver.
Should I claim for a small repair?
Often not. A claim resets your NCB to zero, which can cost more over the next few renewals than the repair. Compare the repair bill with the discount you would lose, or consider an NCB protector add-on.