Why Is Car Insurance Mandatory In India? but Not In New Zealand


It’s not mandatory to protect people from themselves. It’s to protect YOU from other people. If another driver hits you and it’s not your fault, wouldn’t you want them to pay for it?

On an average 350+ road accidents take place in India every day. As you’re aware, nothing is bought unless it is made mandatory. Hence IRDA has made it mandatory to have a car insurance policy under the Motor Vehicles Act. Car Insurance brings financial safety for your car in case of any accidents. Also, third party liability is one of the main reasons to make car insurance mandatory. Third Party Liability covers liability for the damage caused by you to any other vehicle at the time of the accident.

You will have the following primary benefits along with your car insurance policy:

  • Roadside Assistance is now a call away
  • Zero Depreciation Cover
  • Also, you can get a daily allowance when your car is in the garage with Garage Cash Cover and cashless facility at your nearest network garages.

Car insurance is beneficial as it covers damages and reduces your liability. Besides having car insurance is mandatory under the law. Let’s look at its benefits.

  • It offers compensation to survivors in case of fatal car accidents leading to death.
  • It covers hospitalization charges when accidents lead to serious injuries.
  • It covers lawsuits when you get involved in a legal hassle due to a car accident.
  • It covers car repair charges when your car is involved in a crash.
  • It covers your family’s expenses even after the demise of the policyholder in the event of a car accident.
  • It covers loss due to theft, riots or any malicious activities.
  • It covers damage to the car due to fire or self-ignition.

You can avail a No Claim Bonus when no claims are made by you during the tenure of the policy.

It is not actually mandatory in New Zealand. So why is it not mandatory?

TLDR: ACC system covers all accidents no fault, Only 8% uninsured.
There has been some talk of making insurance compulsory a while back, but no action was taken. 8% of drivers in NZ have no insurance compared to the UK where it is required and there 4% of drivers have no insurance. A compulsory system would add about $50 to the cost of every policy. Then there are all the issues of checking that a car has insurance at the roadside (especially if there are monthly insurance payments).
I understand that most if not all insurance companies here will offer you coverage for damage caused to your car when not at fault (even if your coverage is for the third party). It does require you to know who hit you when this occurs and there may be a limit on how much you can claim.
One reason why it is not required in New Zealand has to do with the fact that there is a nationwide no-fault insurance program which covers accident medical costs called ACC. Instead of paying premiums, there is a petrol tax, and a license fee is charged on all cars and some of the license fees are used to pay for the cost of this insurance.

Let’s consider a story.

Scenario one

Frank runs a red light and T-bones Jane. Frank has insurance.

Jane suffers a broken back and is rushed to the emergency room. Through surgery, doctors are able to save her life, and after a year of physical therapy, she’s able to walk again. Frank’s insurance pays for all of this.

Scenario one

Frank runs a red light and T-bones Jane. Frank does NOT have insurance.
Jane is still rushed to the emergency room and undergoes surgery, but now she’s responsible for paying the bills. Her own insurance isn’t enough to cover the hospital bills and physical therapy. She struggles to pay her bills. She can’t afford physical therapy. She never walks again.
Can’t Jane just sue Frank for the money?
She could try, but it probably wouldn’t work. If Frank doesn’t have insurance it probably means he doesn’t have much money to begin with. You can’t get money from someone who doesn’t have any.
The “why does the government require us to buy car insurance” debate goes back more than 100 years since the automobile took off. Even then, cars would crash, leading to damages and injuries that the at-fault driver couldn’t afford to pay for.

n India, car insurance is a mandatory requirement for all vehicles on the roads. The Motor Vehicles Act, 1988, makes it necessary to have at least a minimum level of auto insurance to be able to use a vehicle.

Motor insurance is available in two types of covers:

  1. Third-party liability cover – This insurance plan is the most basic insurance policy that you can buy for your vehicle. This is also the minimum level of insurance that is mandated by law. It protects you from legal liabilities arising out of accidental injuries, death, or property damage suffered by a third party. It does not offer insurance protection to the vehicle itself.
  2. Comprehensive cover – This is a more exhaustive insurance plan that offers third-party liability coverage and own damage cover. The own damage part of the insurance plan safeguards the insured vehicle from theft, external accidents, natural calamities, man-made disasters, and damages while in transit. It also protects the owner-driver of the vehicle from accidental disabilities and death.
Some of the key benefits of taking car insurance are as described below:
  • Third-party claims – If your vehicle is involved in an accident and a third party suffers damages, your third-party liability insurance cover will offer compensation to the victim. Hence, it provides financial protection at a taxing time of an accident. It should be noted that such third-party claims are settled in a Motor Accident Claims Tribunal (MACT). Your insurance company will assist you in dealing with the court formalities as well.
  • Boosts confidence – Having a valid car insurance policy will boost the confidence of the driver to a great extent. This is, in fact, one of the main reasons for the popularity of car insurance.
  • Add-on covers – Car insurance companies enable you to mix and match the coverage based on your specific needs. This is accomplished through the facility of add-on covers. You can choose to buy a specific add-on cover by paying an extra premium. For instance, if you live in an area prone to waterlogging, it is wise to buy an engine protect add-on cover to supplement the coverage offered by your comprehensive car insurance policy.

If you are caught driving an uninsured vehicle, you may have to pay heavy penalties or even face imprisonment.

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