A Rs 600 Saving In Premium, But A Rs 1.40 Lakh Loss: The Real Cost Of Cheap Car Insurance

Gurugram-based Deepak had done everything right. He saved for three years to buy a sedan, compared equated monthly instalments (EMIs) carefully, negotiated the on-road price, and drove home feeling financially secure. Then came the Gurugram floods. His car remained submerged for nearly two days. When he finally got it towed to the service centre, the repair estimate crossed Rs 1.40 lakh. The insurer rejected the engine claim. The reason they cited was that engine protection cover was not included in the policy.

The difference between the policy he bought and the one that would have covered the damage was less than Rs 600. That small saving ended up becoming one of the most expensive financial decisions he had made.

Stories like this are becoming increasingly common as more people buy motor insurance online based almost entirely on price comparisons. The problem is not that vehicles are uninsured. The problem is that millions of vehicles are underinsured without owners fully realising it.

Says Venkatesh Naidu, CEO, Bajaj Capital Insurance Broking: “Out of the cars insured in the country, a very large proportion still either have only third-party cover or inadequate own-damage protection. People focus on saving a few hundred rupees during renewal without understanding what they are giving up in the process.”

Why Third-Party Insurance Creates A False Sense Of Safety

Third-party (TP) insurance, while mandatory under the law, only covers damage caused to another person or vehicle. It does not protect the owner’s own car. Yet many people continue choosing TP-only policies because they appear significantly cheaper.

The financial risk becomes visible only during an accident, flood, theft, or a major repair.

“For most middle-class families, an uninsured repair bill of Rs 1-2 lakh doesn’t come from monthly income. It comes from savings, and that’s where the real damage happens,” says Naidu.

The Hidden Risk Inside A Lower IDV

One of the biggest traps in motor insurance today is the Insured Declared Value (IDV). This is the amount the insurer agrees to pay in case of total loss or theft of the vehicle. However, what many buyers don’t realise is that insurers often offer multiple IDV options. A lower IDV reduces the premium slightly, but also reduces the final payout during a total loss claim. 

“Customers often choose the lower IDV because the premium difference looks attractive. But if the car is stolen or declared a total loss, the compensation is based on that lower value. The savings during purchase can become a massive shortfall later,” adds Naidu.

The Add-Ons Buyers Skip To Save Money

Zero depreciation cover is another add-on many customers skip to reduce premiums. Without zero depreciation, insurers deduct depreciation on replaced parts during claims. That means even after paying for insurance, customers still bear a portion of the repair cost themselves.

“The difference in premium for zero depreciation is usually not very large. But during a claim, the difference in settlement can run into tens of thousands of rupees. For me, zero depreciation is a non-negotiable add-on,” says Naidu.

Engine protection is another major blind spot, especially in flood-prone cities like Mumbai, Gurugram, Bengaluru, and Chennai. Standard comprehensive policies often do not cover engine damage caused by water ingress unless engine protection cover is specifically added.

“The most common reaction customers have after a rejected engine claim is shock. They assume the engine is automatically covered because it’s part of the car. But exclusions matter enormously in motor insurance,” says Naidu.

When Insurance Becomes A Price War Instead Of Protection

This is where the online comparison ecosystem has unintentionally created a problem. Customers compare premiums instantly, but very few compare exclusions, claim conditions, depreciation rules, or add-on structures. Insurance becomes a race to the cheapest quote instead of the most suitable protection.

Says Naidu: “Don’t just compare prices. Compare what is actually covered and what is excluded. The cheapest policy is often the one that leaves you most exposed during a claim.”

What A Well-Protected Motor Insurance Policy Should Include

According to industry experts, a reasonably protected motor insurance policy today should ideally include:

• Own damage + third-party cover

• Zero depreciation

• Engine protection, and

• Return-to-invoice cover

Return-to-Invoice Cover

Return-to-invoice is especially important for newer vehicles because it helps compensate for the original invoice value of the car in case of theft or total loss, rather than only the depreciated value. Experts also advise customers to use the No Claim Bonus (NCB) strategically. Filing claims for very minor scratches or cosmetic damage may sometimes cost more in lost NCB discounts during future renewals.

“If the repair is very small and manageable, sometimes it makes more financial sense not to claim it. Preserving the NCB can create meaningful savings over time,” Naidu adds.

The Difference Between Protection And Panic

Motor insurance is not just a legal document attached to vehicle ownership. For most families, it is the financial wall standing between an unexpected event and years of accumulated savings; and sometimes, the difference between protection and panic is just Rs 500.

FAQs

1. What is zero depreciation cover provided while purchasing car insurance?

Zero depreciation cover is an add-on that your insurance company offers to reimburse you the amount spent while replacing parts with no depreciation applied at the time of a claim. It helps reduce your out-of-pocket expenses.

2. Why should you purchase engine protection cover?

Engine protection cover can come to rescue when you need repairs in your car due to water ingresed into your vehicle or damage caused to the engine. Many times water damage of engine isn’t covered under comprehensive car insurance plans.

3. Please explain what is IDV and why should you care about it?

IDV stands for Insured Declared Value. This is the highest amount your insurance company will offer you if your car gets stolen or declared as a total loss by the insurance company. If you opt for a lower IDV, you’ll save on your premium but receive a lower settlement.