How to Choose Insurance for New & Used Cars in India

The Silent Cost Most Indian Car Owners Ignore

Every single day, approximately 15 vehicles are stolen in India—that’s one every 96 minutes. Meanwhile, car accidents claim 4,200 lives weekly on Indian roads. Yet, here’s the troubling paradox: nearly 40% of insured cars lack comprehensive coverage, relying only on third-party insurance that explicitly excludes protection for their own vehicle.​

This means a ₹15 lakh car owner, following a minor accident, personally bears the entire repair cost—often ₹2-5 lakhs—because their policy covers only the damage they caused to others. Understanding car insurance in India isn’t optional financial housekeeping; it’s the difference between a manageable inconvenience and financial devastation. The 2026 regulatory landscape offers clarity, but only to those who know how to read it.

Key Takeaways (TL;DR)

• Mandatory for all cars: Third-party liability insurance is legally required; failing to renew within 90 days costs you your 50% No Claim Bonus discount​
• New cars: Budget ₹10,640-24,596 for 3-year third-party cover (depending on engine size), then add ₹8,000-12,000 for annual comprehensive own damage​
• Used cars: Depreciation heavily influences premium—a 5-year-old car retains only 50% value, making zero-depreciation cover less critical​
• Zero-depreciation cover pays for itself: Costs ~15% extra but saves you 50% on repair bills for parts (except tyres and batteries)​
• Claim settlement in 2026: Now standardized at 30 days maximum from submission of all documents; 99% of claims settled by top insurers like HDFC Ergo

The Insurance Regulatory Landscape 2025-26—What Changed

The Insurance Regulatory and Development Authority (IRDAI) has made several significant updates for the 2025-26 financial year, fundamentally shifting how car insurance operates in India.

Mandatory 3-Year Third-Party Coverage for New Cars

Starting from regulatory changes in 2024-25 and continuing through 2026, all new cars must now carry a compulsory 3-year third-party liability policy. This is different from the annual renewal cycle most Indians expected. What does this mean practically?​

When you buy a new Maruti Swift (1000cc), your third-party premium will be ₹6,521 for three years—not ₹2,094 annually. This is not a cost increase in absolute terms; rather, it ensures continuous legal coverage without the risk of lapsed policies. Previously, policy lapses—even by 30 days—resulted in complete loss of insurance protection, a scenario that has triggered financial ruin for countless Indians.​

The Unified No Claim Bonus Grid

IRDAI has standardized the NCB structure across all insurers, eliminating confusing discrepancies between companies. Here’s the 2025-26 NCB grid applicable uniformly:

If you drive claim-free for five consecutive years, you earn a maximum 50% discount on your own damage premium. Importantly, this discount applies only to the own damage component, not the third-party premium.​

Standard Deductibles (Fixed)

The deductible—the amount you pay out-of-pocket per claim—is now standardized:

• ₹1,000 for vehicles with engine capacity ≤1500cc​
• ₹2,000 for vehicles with engine capacity >1500cc​

This removes negotiation friction and ensures transparency across all insurers.

Faster Claim Resolution Timeline

The new regulatory framework mandates that surveyors must be appointed within 24 hours of claim notification and must submit reports within 10 days. Final claim settlement must occur within 30 days of receiving all required documents. This is a meaningful improvement from the 45-60 day timelines common in previous years.​

Understanding the Two Main Insurance Types

The choice between third-party and comprehensive insurance is perhaps the most consequential decision for Indian car owners, yet many default to third-party simply because it’s cheaper.

Third-Party Insurance: The Legal Minimum

Third-party insurance covers liability only—meaning damage you cause to other vehicles, property, or people. It does not cover:​

• Damage to your own vehicle (from accidents, collisions, or self-inflicted damage)​
• Theft or robbery of your car​
• Fire or explosions​
• Natural disasters (floods, earthquakes, storms, hail)​
• Personal injuries you sustain in the accident​

The current premium for third-party coverage (annual renewal) ranges from ₹2,094 for vehicles under 1000cc to ₹7,897 for vehicles exceeding 1500cc.​

When third-party insurance makes sense: If you own a vehicle older than 8-10 years with a resale value below ₹2 lakhs, the economics favor third-party only. Your Insured Declared Value (IDV)—the amount the insurer pays in total loss—is already low, and paying for comprehensive coverage costs more than the financial risk you’re protecting against.​

Comprehensive Insurance: Full Coverage

Comprehensive insurance combines third-party liability with own damage protection, covering accidents, theft, natural disasters, fire, and personal injury. It also unlocks add-on covers (zero depreciation, engine protection, roadside assistance) not available with third-party policies.​

The premium for comprehensive insurance varies based on vehicle age, IDV, engine capacity, location, and claims history. For a new ₹10 lakh car in a metro city, annual comprehensive premium typically ranges from ₹8,000 to ₹12,000.​

The psychological factor often overlooked: Comprehensive insurance isn’t just about finances; it’s about psychological relief. When you have comprehensive coverage, you can afford to be in an accident without it disrupting your financial stability. This peace of mind—often invisible in spreadsheets—is a real benefit worth considering.​

The Depreciation Math—Why It Matters for Used Cars

One of the most misunderstood concepts in Indian car insurance is how depreciation affects your claim settlements.

The IRDAI publishes standard depreciation tables that determine the Insured Declared Value (IDV) of your vehicle. These tables show:​

This means a car purchased for ₹10 lakhs three years ago is valued at only ₹7 lakhs (30% depreciation) for insurance purposes. If that car is damaged significantly, the insurance company pays not the full repair cost, but the depreciated value minus the standard deductible.

Practical example: Your 3-year-old Hyundai Creta (₹15 lakh original purchase) is damaged in a parking lot accident. The repair cost is ₹80,000. The insurance company calculates:

• Original IDV: ₹15 lakh
• Depreciation (3 years @ 30%): ₹4.5 lakh
• Current IDV: ₹10.5 lakh
• Your car is repairable, so they assess repair cost as percentage of IDV
• Settlement: ₹80,000 – ₹1,000 deductible = ₹79,000 paid

But here’s where depreciation creates losses: if repair parts are replaced, the insurer deducts depreciation on those parts. A new bumper might cost ₹30,000, but the insurer pays only ₹15,000 (50% depreciation on plastic parts).​

This is precisely why zero-depreciation cover—though it adds ₹1,000-3,500 annually—can be financially rational for newer vehicles.​

No Claim Bonus (NCB)—The Hidden Gold Mine

Most Indian car owners know NCB exists but underestimate its value. Let’s quantify it.

If you maintain a clean driving record for five years, you accumulate 50% NCB on the own damage component of your premium. For a ₹12,000 annual comprehensive premium (₹10,000 own damage + ₹2,000 third-party), this translates to:​

• Year 1 (no NCB): Pay ₹12,000
• Year 5 (50% NCB on own damage): Pay ₹7,000 (₹5,000 + ₹2,000)
• Cumulative savings over 5 years: ₹16,000

Importantly, NCB is transferable to a new car if you switch vehicles and is protected even if you change insurers, provided you renew within 90 days of policy expiry.​

The costly mistake: Many Indians forego filing claims for minor damages (broken headlight, bumper scratch) to preserve NCB. This is actually strategically sound. A ₹5,000 headlight claim resets your 50% NCB to zero, costing you ₹5,000/year for the next year just to rebuild it.​

The Add-On Covers—What’s Worth Buying

Beyond base comprehensive coverage, insurers offer optional add-ons. Most are unnecessarily expensive; a few are invaluable.

Zero-Depreciation Cover (Worth It for Cars ≤5 Years)

This add-on eliminates depreciation deductions on replacement parts (except tyres, batteries, and specific rubber components). Cost: typically 15% of base premium (₹1,000-3,500 annually).​

Verdict: For a car aged 0-5 years, zero-depreciation is mathematically rational. For a 7-year-old vehicle, depreciation is already 50%, so the add-on’s value is limited.​

Engine Protection Cover (Situationally Critical)

Covers hydrostatic lock (water damage to engine), oil leaks, and gearbox damage—critically important in flood-prone areas. Cost: ₹500-1,200 annually.​

Verdict: Mandatory if you live in a flood-prone region (Bengaluru, Mumbai, Chennai monsoon zones). Optional in dry regions.​

Roadside Assistance (Psychological Value)

Provides towing, fuel delivery, locksmith services. Cost: ₹150-500 annually.​

Verdict: Useful for first-time car owners or frequent long-distance travelers; lower priority for urban daily drivers with access to roadside assistance through credit cards or driving apps.​

Return to Invoice (Premium Add-On)

Reimburses you the original purchase price if your car is declared total loss within a specific period (typically first 1-2 years).​

Verdict: Useful only if you’re financing a new car at high interest rates. If you’re purchasing outright, skip it.​

The Claims Process—What Actually Happens When You Need It

Understanding the claims process reduces anxiety and accelerates settlement.

Step 1: Immediate Notification (Within 24 Hours)

Contact your insurer via app, phone, or website within 24 hours of an accident or damage. Most insurers now enable app-based notification; take clear photographs of the damage from multiple angles.​

Step 2: FIR Filing (If Applicable)

An FIR (First Information Report) is mandatory if the accident involves a third party, injury, or theft. File this within 24 hours with local police; retain a copy for your claim documentation.​

Step 3: Document Submission

Prepare these documents:

• Insurance policy copy​
• Vehicle registration certificate (RC)​
• Driving license​
• FIR copy (if applicable)​
• Photographs of damage​
• Accident repair estimate or bills (for reimbursement claims)​

Step 4: Vehicle Inspection (Surveyor Assessment)

The insurer appoints a surveyor within 24 hours to inspect your vehicle. For minor damage (estimated repair <₹20,000), digital photo upload may suffice.​

Step 5: Claim Decision and Settlement

Based on the surveyor’s assessment, the insurer either approves or rejects the claim within 10 days. Approved claims are settled within 30 days in one of two ways:​

• Cashless settlement (preferred): Direct payment to the network garage; you pay only the deductible​
• Reimbursement: You pay for repairs, then submit bills for reimbursement​

Comparative claim settlement ratios among insurers (as of 2025) show HDFC Ergo leading at 99%, followed by Reliance General and Zurich Kotak at 98%.​

The Premium Factors—Why Two Similar Cars Have Different Prices

Your insurance premium is not arbitrary. It’s determined by IRDAI-approved factors reflecting statistical risk:​

1. Vehicle Age & IDV – Older cars have lower IDV, hence lower premiums for own damage​
2. Engine Capacity – Higher displacement = higher risk = higher premium​
3. Driver Age – Drivers aged 26-55 pay lowest premiums; drivers <25 or >60 pay more due to accident statistics​
4. Registered Location – Metropolitan areas (Delhi, Mumbai, Bangalore) have higher accident/theft risk, thus higher premiums; smaller towns have lower rates​
5. Use Type – Commercial usage (taxi, rental) attracts higher premiums than personal use​
6. Claims History – Every claim (except through NCB reset) increases your premium on renewal​

A practical example: A 30-year-old purchasing a new Maruti Swift (1000cc) in Bengaluru will pay ₹9,500 annually for comprehensive insurance. The same car, purchased by a 22-year-old in Guwahati, might cost ₹11,500 annually due to age and location factors.​

New vs. Used Car Insurance Strategy

For New Car Buyers:

The 3-year mandatory third-party cover is a blessing disguised as regulation. Pair it with:

1. 1-year comprehensive own damage policy
2. Zero-depreciation cover (age <5 years) → saves 30-40% on claims
3. Engine protection if you live in monsoon zone
4. Roadside assistance (psychological comfort for first-time owners)

Expected annual cost for a ₹10 lakh new car in 2026: ₹11,000-14,000​

For Used Car Buyers:

The depreciation state of your vehicle determines strategy:

• 2-3 year old car (70-75% residual value): Comprehensive + zero depreciation recommended
• 4-5 year old car (50% residual value): Comprehensive without zero depreciation is sufficient
• 6+ year old car (40-50% residual value): Third-party only is financially rational unless emotional/financial value is high​

Before purchasing any used car, insist on an inspection report documenting mechanical condition. This affects both the agreed IDV and future claim settlement.​

The Skeptic’s Take: Why Insurance Companies Seem Misaligned with Your Interests

The adversarial nature of insurance—where your gain is their loss—creates legitimate skepticism. However, regulatory changes in 2025-26 have genuinely improved the alignment:

1. Faster claim settlement (30 days max) removes the old tactic of delaying claims indefinitely
2. Mandatory 24-hour surveyor appointment prevents weeks-long assessment delays
3. Standardized NCB and deductibles eliminate company-specific opacity
4. Tighter grievance redressal under the new Insurance Bill 2025 empowers policyholders​

The insurance company’s economic incentive is not to reject claims but to manage claims efficiently. A 99% claim settlement ratio (like HDFC Ergo) indicates that the modern Indian insurance industry has largely shed its reputation for claim rejection.​

Three Specific Next Steps

This week:

1. Audit your current insurance: Check if you’re on third-party only (open insurer’s app or policy copy). If yes, and your car is <5 years old, consider upgrading to comprehensive before your renewal date.
2. Calculate your vehicle’s IDV: Use IRDAI depreciation tables and your purchase price to understand what your insurance company will pay in total loss.
3. Set a phone reminder: Mark 90 days before your policy expiry date to begin renewal process—missing this deadline resets your NCB to zero.​

This month:

1. Compare premiums across 3-4 insurers using online calculators (PolicyBazaar, Coverfox, InsuranceDekho) to identify best-value provider given your specific vehicle.
2. Evaluate zero-depreciation: If your car is <5 years, calculate if the 15% premium increase is offset by potential claims. For most new car owners, it is.
3. Document your claim-free record: Request an NCB certificate from your current insurer; this is transferable and prevents disputes during renewal.

By March 2026:

1. File a renewal policy 15 days before expiry (not on expiry date itself) to ensure continuous coverage.
2. Upgrade coverage if appropriate: If you’ve been on third-party for 3+ years with no accidents, consider switching to comprehensive now, as your NCB has likely accumulated to 35-45%.​
3. Add one critical add-on: If you live in a flood-prone area, add engine protection. If you have a new car, prioritize zero depreciation.

Financial Disclaimer

This article provides educational information about car insurance in India and is not personalized financial advice. Insurance premiums, claim settlement practices, and regulatory guidelines are subject to change. All examples are illustrative and may not reflect your exact situation.

Your specific insurance needs depend on your vehicle’s age, value, usage patterns, location, driver profile, and financial capacity to absorb losses. Before purchasing or renewing insurance, consult directly with insurance agents or the insurer’s official website.

The Insurance Regulatory and Development Authority (IRDAI) is the governing body for all insurance products in India. You can file complaints at www.irdai.gov.in if you experience claim rejection or unfair treatment.

This content applies to private car owners in India (individuals, not commercial vehicles or taxi services). Driving without valid third-party insurance is illegal under the Motor Vehicles Act, 1988, and attracts penalties up to ₹2,000 or imprisonment.

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