Your Car Is Insured. But Is It Fully Protected?

Monday, September 28 2026
Source/Contribution by : NJ Publications

For most car owners, buying car insurance is a yearly formality. The policy is renewed, the premium is paid, and the insurance document is safely stored in an email or mobile phone.

But here is an important question: Do you really know what your car insurance policy covers?

Let's Understand the Two Basic Covers

Car insurance in India broadly has two important components:

1. Third-Party (TP) Cover

Under the Indian Motor Vehicles Act, Third-Party insurance is legally mandatory for every vehicle plying on public roads. In insurance terminology:

• First Party: You (the vehicle owner).

• Second Party: The insurance company.

• Third Party: Anyone else on the road-pedestrians, passenger vehicles, or property owners.

What TP Covers: Financial liabilities arising from bodily injury, temporary or permanent disability, or death caused to a third party. It also covers third-party property damage (capped by law at ₹7.5 lakh).

2. Own Damage (OD) Cover

Own Damage insurance is optional by law, but practically essential for any vehicle owner. It specifically covers physical damage to, or loss of, your own car.

What OD Covers:

• Accidental collisions and overturning

• Natural calamities (floods, earthquakes, landslides, cyclones)

• Fire, explosion, self-ignition, or lightning

• Theft or total destruction of the vehicle

• Human-made disasters (strikes, riots, vandalism)

Some Common Claim Situations – What Could Be Covered?

What About Add-ons?

Standard OD policies do not cover 100% of repair costs due to depreciation and specific policy exclusions. This is where add-on covers can become important.

Zero Depreciation:
Standard policies deduct depreciation on replaced parts during a claim (50% on plastic/rubber, 30% on fiberglass, up to 50% on metal over time). A Zero Dep cover ensures the insurer pays the full replacement cost without depreciation deductions.

Return to Invoice (RTI):
If the car is completely damaged or stolen, standard OD pays the current market-depreciated value (IDV). RTI pays back the original invoice price, including road tax and registration charges.

Example : A brand new car for an on-road price of ₹18,00,000 (₹15.5 Lakh ex-showroom + ₹2.5 Lakh for RTO, road tax, and insurance). Two years later, the car is stolen or completely damaged in a flood. Now, IDV of the car has depreciated by roughly 20% to ₹14.4 Lakh

In case, it is a standard OD policy, Rs 14.4 Lakh is paid whereas a policy with RTI add-on cover - invoice price Rs 18 Lakh is paid.

Engine Protection:

It usually covers consequential or secondary damage to the engine. Some examples covered are Engine seizure from oil leakage, Gearbox Damage and Hydrostatic Lock (Water Ingress) during monsoon or driving through waterlogged areas. These events are usually not covered under standard comprehensive or own damage policy.

Common Myths Car Owners Have About Insurance

Myth 1: "I have Third-Party insurance, so my car is fully insured."

Fact: Third-Party insurance covers your responsibility to compensate another person because you are responsible for their loss or injury. It does not pay for damage to your own car.

Myth 2: "The flood water has entered the engine, the insurance company will pay for everything."

Fact: Flood-related damage may be covered under standard Own Damage cover, but excludes consequential or secondary damage to the engine or gearbox. Such losses may require Engine Protect add-on coverage under your policy.

Myth 3: "I can claim for every small damage."

Fact: For minor damage, it may sometimes make financial sense to pay for the repair yourself, particularly if making a claim could affect your No Claim Bonus (discount on renewal)- which can be much more than repair cost.

Myth 4: "I have a Comprehensive policy, so I won't pay a single rupee during a claim."

Fact: There are exclusions, mandatory deductibles (usually ₹1,000 to ₹2,000) that are reduced from your payable claim. Additionally, without Zero Depreciation add-on, your payable claim is further reduced for depreciation.

Myth 5: "If someone hits my parked car, their Third-Party insurance will fix it."

Fact: While legally possible, claiming through another party’s TP cover requires filing an FIR, taking the matter to a special court - Motor Accident Claims Tribunal (MACT), and navigating lengthy court proceedings. Practically, the majority of car owners use their own OD insurance for swift repairs.

Myth 6: "Lowering my IDV to cut down the premium is a smart money-saving trick."

Fact: Your car’s Insured Declared Value (IDV) is its current market value-and it represents the maximum payout you will receive if your car is stolen or damaged beyond repair (a "total loss"). Intentionally lowering this figure on your insurance policy will reduce your annual premium by a few hundred rupees, but it creates a massive coverage gap.

Example: Rahul is renewing his car insurance. To save ₹800 on his renewal premium, he reduces his car’s IDV from ₹6 Lakh down to ₹4 Lakh. 3 months later, his car is stolen. The insurance company strictly pays out ₹4 Lakh. By trying to save ₹800 upfront, Rahul loses ₹2 Lakh out of his own pocket when he needs protection the most. Always keep your IDV aligned with your car's true market value.

Insurance Is Not Just About Buying a Policy

The real purpose of insurance is to protect you from a financial shock when something unexpected happens.

Remember to speak to a qualified/certified insurance advisor who can explain the coverage, exclusions and suitable options based on your needs.

An accident, flood, fire or theft can happen without warning. But the right insurance is more important than simply having an insurance policy.

So, the next time someone says, "Don't worry, my car is insured," ask one simple question: "Insured… but is it fully protected?"

Disclaimer: All the above mentioned coverages, terms & conditions vary from company to company and also the accident or the event which is responsible for the loss. The above details are only for general awareness purposes and strictly not to be used for a policy sale. Please consult an Insurance expert or read policy documents thoroughly before taking a decision.