In India, the Motor Vehicles Act makes it mandatory for all car owners to have active car insurance if they wish to ply their cars on the road. While third-party insurance is the minimum legal necessity, a comprehensive car insurance policy offers holistic protection to the car as well as the owner.
Car insurance is a contract between the car owner and the insurance company. The car owner pays a regular, generally annual, premium in lieu of the coverage offered by the car insurance provider.
There are two types of car insurance coverage in India based on the length of coverage – annual car insurance and long-term car insurance. An annual coverage policy is a conventional policy, whereas the long-term plan was formulated and mandated by the IRDAI in 2019.
In this article, we will understand the meaning and benefits of an annual car insurance policy.
What is Annual Car Insurance?
An annual car insurance policy entails the traditional form of coverage wherein the policy payment cycle if annual and the car owners receive coverage of 1 year commencing from the date of policy issuance. There are two types of annual car insurance in India, depending upon the coverage offered by the policy:
- Comprehensive policy: Comprehensive policy offers protection against damage to car and injuries to passengers due to accident, theft, fire, and other natural causes. It also includes damages caused to a third party as well as third-party death.
- Third-party policy: Third-party insurance policy only offers financial and legal protection against any damages caused by the insured car to a third party. It also covers the death of the third-party, wherein compensation is paid to the legal heir.
Advantages of Annual Car Insurance
- No Claim Bonus (NCB): When the car owner does not file any claim throughout the tenure of the policy, the insurer offers an NCB for the subsequent renewal. It is primarily offered as a discounted renewal premium amount. The NCB ranges from 20% to 50%.
With an annual car insurance policy, you have to withhold claim for a shorter duration to avail the NCB benefits. It might be difficult to not file any claim in 3 years of the long-term policy tenure. However, it is quite possible to go 1 year without any claims.
- Add-on covers:Several additional covers can be included in the policy by the car owner while purchasing the insurance. Popular insurance companies like Tata AIGoffer a plethora of add-ons such as engine protection cover, zero depreciation cover, consumables cover, key protection cover, daily allowance benefit, personal accidental rider benefit, car accessories cover, etc.
Annual car insurance allows you the convenience of adding, modifying or deleting riders every year. Your insurance requirements may change, and you may wish to add a rider to your policy. With annual policy terms, you get to re-visit your add-ons every year.
- Policy modification: You can modify your policy coverage, shuffle the add-ons, avail prevailing discounts, or even change your insurance provider while renewing your policy. With annual car insurance plans, you get the flexibility and opportunity of making these changes every year. You do not need to be stuck with inadequate coverage or inept provider for three years.
- Easy premium payments: While long-term policies may turn out to be more cost-effective in the long run. They require you to cough up a large amount in the premium expenses. Annual car insurance policies divide the costs on an annual basis. Instead of paying a high lump sum amount for a longer coverage, annual plans allow you to pay affordable premiums on a yearly basis. This can be a huge advantage for people who cannot afford to pay the huge premiums of long-term policies.
- Perfect for old cars: As of June 2019, the Supreme Court of India made it mandatory for new car owners to compulsorily purchase an upfront three-year long-term car insurance policy. However, it does not make sense to buy a long-term policy for old cars. You may wish to trade-in an old car for a newer model soon. Therefore, it is feasible to buy a short-term annual plan and renew it as long as you wish to keep the car.
Annual car insurance policies offer the perfect juxtaposition of ease of payments and seamless modifications or migrations. Opt for an annual car insurance policy, for the targeted coverage, higher flexibility, easy modifications and higher probability of getting the NCB.