Buying your first car is exciting. But the reality of the situation is the paperwork, starting with car insurance. Here’s a fact: in India, driving without at least a third-party insurance policy is illegal under the Section 196 of the Motor Vehicles Act.
So when you buy a new car, dealers typically bundle an insurance policy with the delivery — it’s standard practice. But that doesn’t mean you’re stuck with it. You have every right to choose your own insurer and plan, and in many cases, it’s worth doing exactly that.
The problem is that most first-time buyers either accept the dealer’s policy without a second thought or get overwhelmed looking for the options. It’s an avoidable mistake if you know how to buy car insurance with the due diligence.
This guide breaks it all down—the types of car insurance available in India, what to actually look for when comparing plans, and how to keep your premium in check.
What Does Car Insurance Actually Cover?
Before you compare plans or pick an insurer, it helps to know what you’re actually paying for—and of course, what you’re not.
| What’s Covered | What’s NOT Covered |
|---|---|
| Accidents and Collisions Damage to your car from a road accident, whether it’s your fault or not. Theft If your car is stolen, your insurer compensates you based on the IDV (Insured Declared Value) of the vehicle. Natural Calamities Floods, earthquakes, cyclones, and similar events are covered under most comprehensive plans. Fire Damage Accidental fire or explosion is included. Third-party Liability If you damage someone else’s car or injure a person in an accident, this covers the legal and financial liability. | Driving Under Influence (DUI) Any claim arising from drunk or drug-impaired driving is rejected outright. Driving Without a Valid Licence No licence, no claim. If you get caught driving without a valid license and registration at the time of an accident, you can’t claim insurance. Depreciation Standard policies don’t cover the depreciated value of parts replaced after an accident (you need a Zero Depreciation add-on for this). Consumables Engine oil, brake fluid, nuts and bolts used during repairs are typically excluded. Mechanical or Electrical Breakdown Insurance covers damage from external events, not wear and tear. Outside Geographical Limits Driving outside the policy-specified areas without an extension is not covered. |
The exclusions, i.e. what’s not covered, is where the first-time buyers usually get surprised while claiming insurance. So make sure to read through the terms and buy the insurance on time.
But, what the insurance covers and what it doesn’t, also depends on its type. So let’s take a look.
Type of Car Insurance
Not all car insurance policies are the same. In India, there are three main car insurance types—and knowing the difference helps you pick what actually suits your situation.
Comprehensive Insurance
All new cars come with a Comprehensive Insurance, and the buyers should opt for it at least for a few years even after that. It includes damage or injury caused to you, your vehicle, and property, as well as the other person, their vehicle, or property involved in the accident due to your fault.
It also covers vehicle theft and damage due to fire, floods, and other calamities.
Dealers almost always bundle a comprehensive policy at the time of delivery, which is why it’s the most common type among new car owners. The premium is higher than third-party, but so is the protection.
Third-party Insurance
This is the bare minimum required by law. Under Section 196 of the Motor Vehicles Act, you cannot drive without Third-party Insurance.
This type of car insurance covers damage or injury caused to another person, vehicle, or property in an accident where you’re at fault. What it doesn’t cover is any damage to your own car. So if you’re in a collision and your bumper (or anything else) needs replacing—that’s on you.
It’s the cheapest option, but the coverage reflects that.
Own Damage (OD) Cover
Following a 2019 IRDAI ruling, insurers can now offer standalone Own Damage cover—separate from third-party insurance. This means you can buy third-party from one insurer and OD cover from another.
In practice, most buyers still opt for a bundled comprehensive policy. But OD-only cover is useful if you already have third-party insurance and want to add or switch your own damage protection independently.
| Comprehensive | Third-party | OD Cover | |
|---|---|---|---|
| Legally Mandatory | ❌ | ✅ | ❌ (needs third-party separately) |
| Covers Third-party Damage | ✅ | ❌ | ❌ |
| Covers Own Car Damage | ✅ | ❌ | ✅ |
| Add-ons Available | ✅ | ❌ | ✅ |
| Premium | Highest | Lowest | Medium |
Key Terms to Know Before Buying Car Insurance
Car insurance comes with its own vocabulary. If you don’t know what these terms mean, it’s easy to end up with a policy that looks good on paper but disappoints when it matters.
IDV (Insured Declared Value)
IDV is essentially the current market value of your car. It is what your insurer will pay you if the vehicle is stolen or deemed a total loss after an accident. It’s calculated based on the manufacturer’s listed price (at the time of purchase) minus depreciation.
The higher your IDV, the higher your premium, and vice versa. Some buyers lower their IDV to reduce the premium, which may not be a great idea. If something happens to your car, you’ll be undercompensated.
If you’re buying a used car, checking its IDV is very important. It shows what the car is actually worth at the moment.
NCB (No Claim Bonus)
If you don’t make a single claim during your policy year, you earn a No Claim Bonus, meaning a discount on your next year’s premium. NCB starts at 20% after the first claim-free year. It can go up to 50% over five consecutive years.
It’s one of the most straightforward ways to reduce your premium over time, and it’s worth protecting. Most insurers also offer an NCB Protection add-on that lets you retain your bonus even after a claim.
Deductible
A deductible is the portion of a claim you agree to pay out of pocket before the insurer covers the rest. There are two kinds:
- Compulsory deductible (fixed by IRDAI based on engine capacity)
- Voluntary deductible (an amount you choose to bear yourself)
Opting for a higher voluntary deductible lowers your premium. But it also means paying more from your own pocket at claim time — so don’t set it higher than you’re comfortable with.
Zero Depreciation
When you make a standard insurance claim, the insurer deducts depreciation from the cost of parts being replaced before settling the amount. This means you end up paying the difference out of pocket.
Zero Depreciation is an add-on (also called Zero Dep, Nil Dep, or Bumper-to-Bumper cover), which removes that deduction. Your insurer pays the full cost of replaced parts, no depreciation applied.
It’s one of the most recommended add-ons for new car owners — especially in the first three to five years when the car’s value is still significant. After that, the add-on cost may outweigh the benefit.
Other Add-ons
Add-ons are optional covers you can attach to a comprehensive or Own Damage policy to plug the gaps of a standard policy. A few worth knowing (other than Zero Dep) are:
- Engine Protection: Covers repair or replacement of the engine due to water ingression or oil leakage. Useful if you live in a flood-prone area.
- Roadside Assistance: Covers towing, flat tyre help, emergency fuel, and similar situations.
- NCB Protection: Lets you retain your No Claim Bonus even after making a claim.
- Return to Invoice: In case of total loss or theft, you get the original invoice value of the car instead of the depreciated IDV.
Add-ons increase your premium, so pick only what’s relevant to your situation—not everything on the list.
How to Buy Car Insurance? (Top Tips)
Buying car insurance doesn’t have to be complicated. Before you zero in on a policy, here’s a quick checklist to make sure you buy car insurance the right way.
Know Your IDV
Don’t just accept the default. Check the IDV your insurer is offering and make sure it reflects your car’s actual market value—not an artificially lowered number to cut the premium.
Pick the Right Type of Cover
New car? Go comprehensive. If your car is older and you’re trying to cut costs, a third-party policy may be enough—but weigh the risk before deciding.
Compare Before You Commit
Don’t go with the first policy you see—especially the one the dealer hands you at delivery. Use aggregator platforms like PolicyBazaar, Acko, or InsuranceDekho to compare premiums, coverage, and claim settlement ratios side by side.
Check the Claim Settlement Ratio (CSR)
This number tells you what percentage of claims an insurer actually settles. A higher CSR means fewer rejected claims. Always check this before choosing an insurer—IRDAI publishes it annually.
Set a Sensible Voluntary Deductible
A higher voluntary deductible lowers your premium, but means more out-of-pocket expense at claim time. Pick a number you’re genuinely comfortable paying in a worst-case scenario.
Buy Directly From the Insurer or a Trusted Platform
You can buy online through the insurer’s website, via aggregator platforms, or through a licensed agent. Online is usually faster, more transparent, and sometimes cheaper. Avoid buying solely on a dealer’s recommendation without comparing elsewhere.
Keep Your Documents Ready
You’ll need your RC (Registration Certificate), previous insurance policy (if any), and your personal KYC documents. Having these handy makes the process significantly faster.
Keeping these tips in consideration, you’ll be buying the right insurance. The difference shows up when you actually need to file a claim.
Where to Buy Your Car Insurance?
Once you have decided on the type of policy and the coverage you need, the next step is knowing where to actually buy it. In India, you have three ways to buy car insurance.
Through the Dealer
This is the most convenient option for new or first time car buyers. When you take delivery of your car, the dealer typically bundles an insurance policy from their preferred or partner insurer. So you, as the buyer, don’t have to do much—it’s handled as part of the paperwork.
The downside is that dealer-bundled policies aren’t always the most competitive in terms of pricing or coverage. You’re essentially paying for convenience.
Best for: First-time buyers who want a hassle-free experience at the car purchasing and delivery.
Directly From the Insurer
You can buy a policy directly from an insurance company—either through their website, app, or by visiting a branch. Major insurers like HDFC ERGO, Bajaj Allianz, ICICI Lombard, Tata AIG, etc., all offer direct purchase options online.
Buying directly from the insurance provider cuts out the middlemen—it gives you more control over the coverage. And since you’re dealing with the insurer, the renewals and claims are slightly more straightforward.
Best for: Buyers who already know which insurer they want and prefer dealing directly.
Through Online Insurance Marketplaces
You can also buy car insurance online through platforms like PolicyBazaar. They let you check out multiple insurance providers side-by-side. You can compare their premiums, coverage, add-ons, and claim settlement ratios, all in one place. You can buy the policy on the spot once you’ve made your decision.
These platforms are, arguably, the most informed way to buy car insurance. That is, especially if you’re doing it for the first time or renewing and want to switch insurers.
Best for: Buyers who want to compare options and make sure they’re getting the best value.
Through an Insurance Agent or Broker
Insurance agents and brokers can help you navigate your options, especially if you find the process overwhelming. Agents typically represent a signal insurer, while brokers work independently and can offer plans from multiple companies.
The trade-off is that their recommendations may be influenced by commissions. So you may want to do a baseline comparison on your own before taking their word for it.
Best for: Buyers who prefer a guided, one-on-one experience over doing it themselves.
Regardless of where you buy, what matters most is that you’ve compared your options.
The aim is to understand the coverage and choose a policy that fits your actual needs. Don’t just go on and buy cheap car insurance online or one that is easiest to sign.
But of course, you can get good insurance while also keeping the premiums lower.
Ways to Reduce Your Car Insurance Premium
Buying insurance is non-negotiable—but you don’t have to overpay for it. A few smart decisions—at the time of buying and at renewal—can meaningfully reduce what you pay every year without compromising on coverage.
Compare Before You Buy (or Renew)
Don’t auto-renew with the same insurer out of habit. Use aggregator platforms to benchmark your current premium against what others are offering. Switching insurers at renewal is completely legal and often worth it.
Protect Your NCB
Your ‘No Claim Bonus’ grows every claim-free year, up to 50% off your premium. Avoid filing small claims you can afford to pay out of pocket—the discount you preserve is usually worth more in the long run.
Set a Reasonable Voluntary Deductible
Agreeing to bear a portion of the claim yourself brings your premium down. Just make sure it’s an amount you’re actually comfortable paying when needed.
Don’t Over-Insure with Unnecessary Add-ons
Add-ons are useful, but only the ones relevant to your situation. An engine protection cover makes sense in a flood-prone city. Roadside assistance makes sense if you drive long distances. Pick deliberately, not by default.
Get the IDV Right
A slightly lower IDV reduces your premium, but don’t go too low. Find the middle ground—close to your car’s actual market value—so you’re not undercompensated if something goes wrong.
Install ARAI-Approved Anti-Theft Devices
Fitting a certified anti-theft device in your car qualifies you for a discount from most insurers. It’s a one-time investment that pays off at every renewal. Plus, your car will be more secure, so it’s a win-win.
Buy Online
Buying car insurance online is almost always cheaper than offline. There are no agents involved, meaning no commissions. Plus, you won’t have to fill out mounds of overhead paperwork.
Lowering your premium isn’t about cutting corners on coverage—it’s about paying only for what you actually need. A little bit of effort at buying or renewal time can save you a few thousand rupees every year, consistently.
Closing Thoughts
Car insurance isn’t the most exciting part of owning a car—but it’s one of the most important. Get it wrong and it shows up at the worst possible time.
Whether you’re a first-time buyer accepting the dealer’s policy or an existing owner auto-renewing without a second thought — a little due diligence goes a long way. Here’s what it comes down to: know the type of coverage you need, understand what your policy actually covers, and don’t just go with the first option in front of you.
Compare your options, pick the right add-ons, protect your NCB, and revisit your policy at every renewal. That’s really all it takes to stay covered without overpaying.
Your car gets you from point A to point B. The right insurance makes sure nothing stops it from doing that. So choose wisely.