Save up to 50% by opting for minimal motor insurance cover: Experts

Owners of younger or more valuable vehicles should stick to comprehensive cover

The pandemic has forced people to work from home, which means they are using their vehicles much lesser than in pre-Covid-19 times. As a result, they have lesser reason to worry about accidental damage. In this scenario, many vehicle owners are wondering if they should persist with comprehensive motor insurance cover, or shift to a minimal cover.

Motor insurance has two components — third party (TP) and own damage (OD). The TP cover is mandatory and is inexpensive. The OD cover is optional, but is the more expensive component. A comprehensive policy has both TP and OD covers.

Experts suggest that if you decide to reduce your cover, you should supplement the TP cover with at least a fire and a theft cover. Says Shreeraj Deshpande, chief operating officer, Future Generali India Insurance: “Owners may not use their vehicles in public places and hence may not want to insure the vehicle for OD. But it will be exposed to risks like theft and fire even when parked, so do buy these covers.”

Considerable cost saving

The key advantage of the TP + fire + theft option is savings on cost, which can be substantial. Says Utpal Raman Sharma, head–car insurance, Policybazaar: “A TP + fire + theft plan could cost as much as 50 per cent less than a comprehensive insurance cover (see table).”

No Claim Bonus (NCB) is the discount given by the insurer at renewal if the customer has not made a claim during the previous policy year. Says Sharma: “If you have earned the NCB, you will get it, even when you make such a shift.”

Risk exposure rises

Insurance is purchased to transfer risk and buy peace of mind for the insured. Says Gopalakrishnan S, executive vice president, motor, Global Insurance Brokers: “The TP + fire + theft cover will not protect your vehicle against any sort of accidental damage, like a tree fall or your car getting flooded.” If you are involved in a driving accident and your car gets damaged, you will not receive compensation.

Next year, when you wish to switch from a lower-grade to a higher-grade cover, you may have to comply with certain underwriting conditions. This could be cumbersome and could even reduce the cost-effectiveness of this measure. Says Vinita Porwal, associate director, Anand Rathi Insurance Broking: “Once you have opted out of the zero depreciation cover, it will be difficult to get it again. Even the Insured Declared Value (IDV) could be reduced if you want to return to comprehensive insurance."

Should you reduce your cover?

Some owners will be better off staying comprehensively insured, especially those whose cars are younger or more valuable. Says Porwal: “If your car is up to five years old, reducing the cover will not be a good idea. The vehicle will be driven occasionally. And accidents can occur even to parked vehicles. A weather-related calamity, like the recent cyclone, can lead to an event like a tree falling on your car and damaging its roof or windscreen. That is very much possible.”

Opt for the TP + fire + theft cover in only a few scenarios: The first is if your family has multiple cars and one of them is rarely used. The second is if you own a garage, or have a designated slot in your building that is preferably covered and is not prone to waterlogging. And the third is if you believe low usage will persist for a full year or more. Most other people should continue with a comprehensive cover.