A vehicle is an important asset for anyone. Whether used for personal or commercial purposes, it requires a lot of care. It is thus the duty of the owner of a vehicle to protect it from unforeseen situations such as accidental damage or theft.

In case of damage, repairs may cost the owner a lot of money even for minor repairs. Hence, buying a motor insurance policy to protect the financial loss incurred due to the damage to the vehicle is very important.

Motor insurance is commonly also called vehicle insurance or auto insurance. It is purchased for private or passenger vehicles such as a motorcycle and car, and commercial vehicles such as trucks and busses etc.

In India, for the safety of pedestrians and motorists, to cover the expenses and financial loss to the owner of the vehicle and public, as a social welfare measure, motor insurance is made compulsory by the Government for every vehicle that is taken to the road, in fact, sold.

While there are many forms of insurance such as Life insurance, Health insurance, Home insurance etc., the Government making motor insurance mandatory clearly signifies the importance it has. This is because, motor insurance not only provides for the expenses incurred towards repairs in case of accidental damage to the vehicle or for the replacement cost in case of theft but also for any injury to the owner or any third party or third-party property.

Repair or replacement costs of a vehicle in case of a damage can be exceedingly difficult for the owner. For a meagre fraction of the cost of the vehicle in the form of yearly premium, one can breath easy and not feel a pinch on the pocket in case of any unforeseen even. Besides, absence of insurance can lead to incurring of penalties by the transport authority or the police, which the common man or any vehicle owner does not feel happy about let alone appreciate.

Motor insurance in India can be categorised as follows.

  • Car insurance – compensates the expenses or the loss in case of a mishap and injuries are suffered by the person or damage to the vehicle. Commonly, this cover provides any loss or damage protection, personal accident cover, third-party injury or death claims, and personal cashless claims.
  • Two-wheeler insurance – as the name suggests generally covers motorcycles or bikes and scooters. With the majority of two-wheeler accidents happening with the younger generation, it is no wonder that the government made it mandatory.
  • Commercial vehicle insurance – generally provides financial protection in case of accident or theft resulting in the loss of the vehicle or even total damage. It generally covers passenger and goods carrying vehicles such as busses, trucks, taxies, and tractors etc.

Similarly, the type of coverage under motor insurance can be classified as below.

  1. Third-party insurance cover
  2. Comprehensive insurance cover
  3. Pay as you drive insurance

Pay as you drive is relative a new concept in line with the IRDA guidelines. As per these guidelines, the owner of a vehicle is allowed to pay insurance premium on the vehicle as per the distance travelled by the vehicle. Depending on the estimated distance of travel proposed by the owner for the policy period, the premium is decided at the beginning of the policy. This covers comprehensive damage and third-party liability for the policy tenure.

Hundreds of thousands of road accidents occur every year in India, the highest in the world as per a WHO survey. The generally poor condition of the roads makes it more sensible to insure a vehicle. Nevertheless, there are advantages of getting vehicles insured.

  • It provides great financial assistance in case of any mishap
  • The premium is generally meagre in comparison to the vehicle cost
  • Financial assistance can also be extended to third-party damages caused
  • A variety of causes and damages are covered under the policy like theft of the vehicle, legal protection in case of third-party damage, death or injury, and accidental damage caused by storm, flood, landslide, terrorism, fire, explosion, malicious acts etc., 

According to Sec 146 of the Motor Vehicles Act, 1988, insuring a vehicle before taking it on to the road is mandatory. So, discussing limitations of motor insurance is a merely a formality or for namesake. It may be apt to mention some general things that are excluded under a motor policy.

  • Mechanical and electrical breakdown
  • Damage from nuclear substance or radiation
  • Damage caused under the influence of alcohol or drug abuse
  • Depreciation or general wear and tear of the vehicle
  • Damage cause while driving without a valid licence
  • Vehicle used for illegal activities

The discussion on the tax liability or relaxation in the case of motor insurance is limited. Any claim admitted by the insurance in case of personal accidental disability is fully exempt from tax if the disability is permanent, and proportionately exempt if the disability is temporary. It is evident from this statement that the claim admitted is taxable if there is no disablement. Also, compensation received or claim admitted in case of motor accidents is exempt from tax as per the law.