Motor Insurance in India: Third-Party, Comprehensive, IDV, NCB and Add-ons

The Short Answer

Motor insurance in India has two parts. Third-party cover is compulsory under the Motor Vehicles Act, 1988: it pays for death, injury or property damage you cause to others. Own-damage cover is optional: it pays to repair or replace your own vehicle after an accident, theft, fire or flood. A comprehensive policy combines both.

The decisions that matter are the insured declared value (the most the insurer pays if the vehicle is stolen or written off), the no-claim bonus you protect by not making small claims, and a handful of add-ons, above all zero depreciation for newer vehicles.

The law asks you to protect other people. Protecting your own vehicle, and your own wallet, is your choice.

---

The Structure

Third-party, own-damage and comprehensive

	Third-party only	Standalone own-damage	Comprehensive
Legal requirement	Compulsory	Optional; needs a valid third-party policy alongside	Satisfies the law
Pays for others’ injury, death, property damage	Yes	No	Yes
Pays for your own vehicle	No	Yes	Yes
Premium	Fixed by the government, same at every insurer	Set by the insurer	Third-party part fixed; own-damage part set by the insurer

New vehicles must be sold with long-term third-party cover: three years for cars and five years for two-wheelers, a rule in force since September 2018. The own-damage part can be bought for one year and renewed separately, which is why owners of newer vehicles often hold a standalone own-damage policy alongside a long-term third-party one.

Every policy must also carry compulsory personal accident cover of ₹15 lakh for the owner-driver, unless the owner already holds personal accident cover of at least that amount.

---

The Number That Matters

Insured declared value (IDV)

The IDV is the vehicle’s insured value: the maximum the insurer pays if it is stolen or declared a total loss. It is the manufacturer’s listed selling price minus depreciation by age:

Age of vehicle	Depreciation for IDV
Up to 6 months	5%
6 months to 1 year	15%
1 to 2 years	20%
2 to 3 years	30%
3 to 4 years	40%
4 to 5 years	50%
Over 5 years	Agreed between you and the insurer

A lower IDV makes the premium cheaper, which is why some renewals quietly reduce it. Do not accept a lower IDV than the schedule gives: if the vehicle is stolen, the IDV is all you get.

---

The Reward

No-claim bonus (NCB)

Every claim-free year earns a discount on the own-damage premium:

Claim-free years	NCB on own-damage premium
1	20%
2	25%
3	35%
4	45%
5 or more	50%

• NCB belongs to you, not the vehicle. When you sell a vehicle, keep the NCB and transfer it to your next one.
• Renew on time. NCB is lost if the policy is renewed more than 90 days after expiry.
• Do the arithmetic before a small claim. A claim usually resets NCB to zero. For a minor dent, paying yourself can cost less than losing several years of discount. An NCB protector add-on lets you make limited claims without losing it.

---

Add-ons

The add-ons worth considering

Add-on	What it does	Worth it for
Zero depreciation	Pays the full cost of replaced parts without deducting depreciation on plastic, rubber, fibre and metal parts	Vehicles up to about 5 years old
Engine protection	Covers engine damage from water ingress or oil leakage, which the base policy excludes	Flood-prone cities and low-lying areas
Return to invoice	On total loss or theft, pays the invoice price, not just the IDV	New vehicles, usually in the first three years
Roadside assistance	Towing, battery jump-start, flat tyre, fuel delivery	Frequent highway drivers
Consumables	Covers nuts, bolts, oil, coolant and similar items used in repairs	Newer vehicles, alongside zero depreciation
NCB protector	Keeps your NCB after a limited number of claims	Owners with a high NCB

Insurers can also offer usage-based policies that price cover by distance driven or driving behaviour. They suit people who drive very little.

---

When Something Happens

Claims, and what the law provides

Own-damage claims

• Inform the insurer at once and before moving the vehicle to a garage, unless it is unsafe to leave it.
• For theft, file an FIR immediately; for accidents involving injury or third-party damage, inform the police.
• Use a network garage for cashless repair, or pay and claim reimbursement with bills and the surveyor’s report.
• Expect deductions for depreciation (unless you have zero depreciation) and a compulsory excess per claim.

Third-party claims and road-accident support

Claims by injured people or the families of those killed are decided by the Motor Accident Claims Tribunal, and your insurer defends and pays them. Two government measures help victims directly: compensation for hit-and-run victims of ₹2 lakh on death and ₹50,000 for grievous hurt, and, since May 2025, cashless treatment for any road-accident victim of up to ₹1.5 lakh for up to seven days from the accident at designated hospitals.

---

Avoid These

Common motor insurance mistakes

1. Driving on a lapsed policy

Driving without valid third-party cover is an offence, and an uninsured accident can leave you personally liable for a large tribunal award.

2. Accepting a lower IDV to save premium

It saves a little now and costs a lot on theft or total loss.

3. Claiming for small damage

Losing a 35% or 50% NCB can cost more than the repair.

4. Not declaring modifications or CNG kits

An undeclared CNG kit, alloy wheels or engine modification can lead to a rejected claim. Get them endorsed on the policy.

5. Not transferring the policy when you buy a used vehicle

Transfer the insurance into your name within 14 days of the ownership transfer, or own-damage claims can be refused.

Questions

Frequently asked questions

Is third-party motor insurance compulsory in India?

Yes. Under the Motor Vehicles Act, 1988, every vehicle used in a public place must have at least third-party insurance. Own-damage cover is optional.

What is IDV in car insurance?

Insured declared value: the vehicle’s listed price minus age-based depreciation. It is the maximum the insurer pays if the vehicle is stolen or written off.

Can I transfer my no-claim bonus to a new car?

Yes. NCB belongs to the owner, not the vehicle. Retain it when you sell, and apply it to the new vehicle’s policy.

Is zero depreciation cover worth it?

For vehicles up to about five years old, usually yes, because without it a large share of the cost of replaced parts is deducted from claims.

What happens if my policy lapses?

Driving without third-party cover is an offence. Renew within 90 days to keep your NCB; after a break, the insurer may inspect the vehicle before restarting own-damage cover.

Do I need the ₹15 lakh personal accident cover?

It is compulsory for the owner-driver unless you already hold personal accident cover of at least ₹15 lakh. Even then, a standalone personal accident policy is often broader.