Own damage insurance

What is own damage insurance?

Own damage (OD) insurance covers the insured's own vehicle. It pays for repairs after an accident, and for the vehicle's value if it is stolen or written off, subject to depreciation, deductibles and exclusions. Unlike third party motor insurance, OD cover is optional under Indian law, and insurers price it themselves.

OD can be bought in two ways: inside a comprehensive (package) policy alongside third party cover, or as a standalone own damage policy when the vehicle already has a valid third party policy, usually the long-term one sold with a new vehicle.

How own damage insurance works in India

Perils covered. The standard policy wording, derived from the old India Motor Tariff, covers loss or damage from fire, explosion, self ignition, lightning, burglary and theft, riot and strike, earthquake, flood, storm and similar weather events, landslide, accidental external means, malicious acts, terrorism, and damage while in transit by road, rail, inland waterway, lift or air.

Common exclusions. Normal wear and tear, mechanical or electrical breakdown, consequential loss, driving without a valid licence, driving under the influence of alcohol or drugs, use outside the geographical area and use for a purpose not allowed by the policy (for example a private car used as a taxi).

Sum insured. The maximum payout is the insured declared value (IDV), which is the manufacturer's listed price less age-based depreciation. A vehicle is treated as a constructive total loss when the cost of retrieval and repair exceeds 75% of the IDV.

Depreciation on parts. In a partial loss claim, the standard wording deducts depreciation on replaced parts: 50% on rubber, nylon and plastic parts, tyres, tubes, batteries and airbags; 30% on fibreglass; nil on glass; and an age-based scale on metal parts that rises from nil for a vehicle under six months old to 50% for one over ten years old. This is the gap that a zero depreciation add-on fills.

Standalone OD. IRDAI asked insurers to offer standalone OD cover from 1 September 2019, because new cars and two wheelers already carried three and five year third party policies. In 2020 IRDAI withdrew the long-term package (multi-year OD) option from 1 August 2020, leaving one-year OD as the norm with long-term third party.

Pricing. OD premium depends on the IDV, vehicle make and model, cubic capacity, age, registration zone, past claims and the no claim bonus, which applies only to the OD premium. Insurers file OD rates and add-ons with IRDAI under the IRDAI (Insurance Products) Regulations, 2024.

Claims. IRDAI's Master Circular on General Insurance Business (June 2024) requires a surveyor to be appointed within 24 hours of claim intimation, the survey report within 15 days, and a decision within 7 days of the report. Motor losses below ₹50,000 need not be surveyed by a licensed surveyor.

What own damage insurance means for distribution

• OD is where the margin is. Since the third party premium is fixed by government, OD premium and add-ons carry most of the commission and reward for dealers, brokers, POSPs and agents. Insurers compete on OD discounts, which is why OD rates can vary widely for the same car.
• The year two to five renewal is contested. With third party already paid for three or five years, the first OD renewal is a clean switching point. Dealer-linked MISPs, aggregators and banks all target it. Distributors who capture the customer's mobile number and renewal date at purchase hold an advantage.
• Do not inflate or deflate the IDV to hit a price. Cutting the IDV lowers the premium today but reduces the payout on theft or total loss. Insurers let the IDV move only within a limited band around the computed value, and a higher IDV costs more premium. Sales scripts should explain the trade-off.
• Inspection after a break. If a policy lapses, even by a day, the insurer will usually require a vehicle inspection before restarting OD cover, and the no claim bonus is lost if the gap exceeds 90 days. Renewal reminders that land before the expiry date protect both the customer and the distributor's book.
• Explain deductions at the point of sale. Most OD complaints come at claim time, when customers see depreciation, compulsory deductibles and consumables cut from their bill. A short explanation of these at the sale, and a clear offer of the relevant add-ons, reduces disputes later.