When you buy a car, the first thing you must think about (after fuel and maintenance) is car insurance. Car insurance companies protect you from big money loss when your car meets with an accident, gets damaged, or is stolen.
But there are so many car insurance companies in the market. How do you know which one is right for you?
In this blog, we will explain in very easy language:
- What car insurance companies do
- Types of car insurance policies
- Important factors to compare car insurance companies
- Simple examples and calculations
- Common mistakes people make
- FAQs for better understanding
This guide is useful for students, new car owners, and anyone who wants to understand car insurance in a simple way.
What Does a Car Insurance Company Do?
A car insurance company is a company that:
- Sells car insurance policies
- Collects premium (money) from you
- Pays for your loss (as per policy) when your car is damaged or causes damage to others
In simple words:
You pay a small amount regularly → the company pays a big amount when something goes wrong with your car.
Main services of car insurance companies
- Third-party coverage – If your car hits another vehicle or person and you are legally responsible, the company pays for that damage (up to the policy limit).
- Own damage coverage – If your own car is damaged due to accident, fire, flood, theft etc., the company pays for repairs or compensation.
- Add-on services – Extra benefits like zero depreciation cover, roadside assistance, engine cover, etc.
- Cashless claim facility – You can repair your car at partner garages where the company directly pays the bill (you pay only non-covered charges).
Types of Car Insurance Policies
Most car insurance companies usually offer these main types of plans:
Third-Party Liability Only Policy
- Covers damage to other people’s property or vehicle caused by your car.
- Also covers injury or death of a third person.
- Does NOT cover the damage to your own car.
- It is usually cheaper, but coverage is limited.
- In many countries, at least third-party insurance is legally mandatory.
Example:
If your car hits another car and their repair cost is $1,000, the third-party policy pays this amount (as per terms). But if your own car also gets damaged, this policy will not pay for your car’s repair.
Comprehensive Car Insurance Policy
- Covers third-party liability + own damage.
- Gives wider protection compared to third-party only.
- You can also add add-ons to improve coverage.
- Premium is higher, but it saves you from big sudden expenses.
Example:
Your car hits a tree and the repair cost is $800. No other vehicle is involved.
- Third-party policy: pays $0, you pay full $800.
- Comprehensive policy: insurance company pays most of the $800 (after deducting some charges like deductibles).
Add-on Covers (Extras)
Most car insurance companies offer add-ons with comprehensive plans, for extra premium:
- Zero Depreciation Cover – Company pays the full cost of parts (plastic, metal etc.) with almost no deduction for wear & tear.
- Roadside Assistance – Help when your car breaks down on road (towing, jump-start, fuel delivery in emergency, etc.).
- Engine Protection Cover – Protects engine damage due to water ingression or oil leakage (normally not fully covered).
- Return to Invoice Cover – If your car is stolen or totally damaged (total loss), the company pays the invoice value of the car (or as per terms), not just current market value.
Important Terms You Should Know
Before we compare car insurance companies, learn a few simple terms:
Premium
The premium is the amount of money you pay to the car insurance company to keep your policy active.
- Can be paid yearly, or sometimes monthly/quarterly as per company rule.
- Depends on car value, age, location, type of cover, add-ons, driving history, etc.
IDV (Insured Declared Value)
IDV is usually the current market value of your car that the company agrees to insure.
- If your car is stolen or totally damaged, the maximum amount the company will pay is around the IDV.
- Higher IDV = higher premium, but better protection.
- Lower IDV = lower premium, but smaller claim amount.
Example – IDV and premium relation:
- IDV = $10,000 → annual premium = $400
- If you reduce IDV to $8,000 → annual premium may reduce to $340
You save $60 in premium but lose $2,000 of coverage. So, think carefully before selecting IDV.
Claim
A claim is a request you make to the car insurance company to pay for the loss or damage as per policy terms.
Process is usually:
- Accident or loss happens
- You inform the company (online or call)
- Surveyor inspects damage (or digital photos in online process)
- Repair is done or car is settled
- Company pays the approved amount (cashless or reimbursement)
Claim Settlement Ratio (CSR)
This is a very important factor when comparing car insurance companies.
- CSR = (Number of claims settled / Number of claims received) × 100
- Higher CSR means the company settles more claims and is more reliable.
Example – Calculating CSR
- Company A:
- Claims received in a year = 10,000
- Claims settled = 9,300
- CSR = (9,300 / 10,000) × 100 = 93%
- Company B:
- Claims received = 10,000
- Claims settled = 8,500
- CSR = (8,500 / 10,000) × 100 = 85%
Here, Company A looks better in terms of claim settlement ratio.
How to Compare Car Insurance Companies
When you search online, you will see many car insurance companies. Do not get confused by just looking at low premium advertisements. Take a step-by-step approach:
Check if the Company is Registered and Genuine
- Make sure the company is registered with the official insurance regulator of your country (for example, the insurance authority or regulator).
- Registered companies must follow rules, which protects customers.
Compare Premium vs Coverage
Cheap premium is good, but not if the coverage is too low.
Mini Example – Premium vs Coverage
| Company | Annual Premium | IDV / Coverage | Add-ons Included |
| A | $350 | $9,000 | None |
| B | $380 | $10,000 | Zero Dep + RSA |
If you choose Company A, you save $30 per year.
If your car meets an accident, Company B may pay more due to higher IDV and add-ons.
Sometimes paying a little extra premium is better for long-term safety.
Compare Claim Settlement Ratio and Speed
- Look at CSR values; preferably choose a company with 90% or above, if possible (this number is only an example, actual good CSR depends on market).
- Also check how quickly they settle claims:
- Do they offer instant or same-day approvals for small claims?
- Do they have simple online process?
You can check this information on their official website, policy brochure, or customer reviews.
Check Cashless Garage Network
Many car insurance companies have a network of cashless garages.
- At a cashless garage, you don’t have to pay the full repair bill yourself.
- The garage directly takes payment from the insurer, and you only pay non-covered charges (like deductibles).
When comparing companies, check:
- How many cashless garages they have
- Whether they have a garage near your home, office, or regular routes
Study Add-on Options
Different companies offer different add-ons.
If you live in:
- A flood-prone area → engine protection is important
- A city with heavy traffic → zero depreciation cover is useful
- A place with long highway drives → roadside assistance is helpful
Choose a company that offers relevant add-ons at a reasonable price.
Customer Service & Digital Experience
Good car insurance companies today offer:
- 24×7 customer support (phone, email, chat)
- Easy mobile app or website for:
- Buying a policy
- Renewing policy
- Raising a claim
- Tracking claim status
A simple digital process saves a lot of time and stress, especially during an accident.
Simple Premium Calculation Example
Let’s understand how premium might be calculated in a very basic way (real formulas are more complex and vary by company and country, but this will help you understand the idea).
Assume:
- Car IDV: $10,000
- Base own damage rate: 2.5% of IDV
- Third-party fixed premium: $120
- Add-ons (zero dep + roadside assistance): $60
- GST/Tax: 18% on total premium
Step-by-step calculation
- Own damage premium
= 2.5% of $10,000
= 0.025 × 10,000
= $250 - Add third-party premium
Own damage premium = $250
Third-party premium = $120
Subtotal (before add-ons) = $250 + $120 = $370 - Add add-on charges
Add-ons = $60
Subtotal (with add-ons) = $370 + $60 = $430 - Add taxes (18%)
Tax = 18% of $430
= 0.18 × 430
= $77.40 - Final premium
= $430 + $77.40
= $507.40
So, the total yearly premium you pay to the car insurance company is about $507.40.
Different companies may have different base rates and add-on costs, so final premiums will change. That’s why comparing at least 3–5 car insurance companies is a good practice.
How to Choose the Right Car Insurance Company – Step-by-Step
Here is a simple step-by-step guide you can follow:
- List your needs
- New or old car?
- High traffic area or low traffic?
- Do you park on road or in a safe parking?
- Do you travel long distances?
- Decide policy type
- Minimum: third-party (if only legal requirement and very tight budget)
- Better: comprehensive policy with useful add-ons
- Shortlist companies
- Choose 3–5 car insurance companies based on popularity, reviews, or recommendations.
- Choose 3–5 car insurance companies based on popularity, reviews, or recommendations.
- Compare key factors
- Premium
- IDV
- CSR and claim process
- Cashless garage network
- Add-ons and their prices
- Read policy wordings carefully
- Understand what is covered and what is not covered (exclusions).
- Understand what is covered and what is not covered (exclusions).
- Check renewal and support
- Do they send reminders before expiry?
- Is renewal online and easy?
- Make the decision
- Choose the company that gives the best balance of price, coverage, and service – not just the lowest premium.
Common Mistakes People Make With Car Insurance Companies
Many people face problems because they make these mistakes:
- Choosing only the cheapest premium
- Later they realise coverage was very low or claim experience is poor.
- Later they realise coverage was very low or claim experience is poor.
- Not reading exclusions
- Example: Driving without a valid license, drunken driving, or using personal car as taxi is usually not covered.
- People get shocked when claims are rejected.
- Example: Driving without a valid license, drunken driving, or using personal car as taxi is usually not covered.
- Not disclosing correct information
- Hiding previous accidents, modifications, or usage (e.g., commercial use) can lead to claim rejection.
- Hiding previous accidents, modifications, or usage (e.g., commercial use) can lead to claim rejection.
- Missing policy renewal
- If the policy lapses, your car is without protection and you may have to get inspection again.
- If the policy lapses, your car is without protection and you may have to get inspection again.
- Ignoring add-ons completely
- Add-ons like zero depreciation can save a big amount in claim, especially for new cars.
Avoid these mistakes to enjoy smooth service from car insurance companies.
Example Scenario: Choosing Between Two Companies
Let’s assume you are choosing between Company X and Company Y for your 3-year-old car.
- IDV needed: around $7,000
Company X
- Premium: $380
- IDV: $7,000
- CSR: 92%
- Add-ons: zero dep + roadside assistance included
- Cashless garages: 3 garages near your area
Company Y
- Premium: $340
- IDV: $6,500
- CSR: 85%
- No add-ons
- Cashless garages: 1 garage, 12 km away
You might feel Company Y is cheaper by $40. But:
- Lower IDV → lower protection
- Lower CSR → higher risk of claim issues
- No add-ons → you may pay more during repairs
- Fewer garages → more trouble in emergencies
So, even though Company X is slightly more expensive, it may be the better choice for long-term peace of mind.
Also Read: GEICO Car Insurance: A Guide for Everyday Drivers
Final Thoughts
Car insurance companies play a crucial role in protecting your money, car, and peace of mind. Instead of choosing the first company you see, spend a little time to:
- Understand types of policies
- Learn basic terms like premium, IDV, CSR
- Compare different companies on coverage, claim service, and add-ons
- Check genuine reviews and support quality
A smart and informed decision today can save you thousands of dollars and a lot of stress tomorrow.
If you want, next we can create a comparison checklist or a simple Excel-friendly table format that you can use to compare car insurance companies side by side.