What is Car Insurance? Importance & Tax Benefits of Car Insurance
24 September 2018
Car insurance is an insurance policy taken by vehicle owners to mitigate the risks associated with a vehicle in case of an accident or theft. Auto insurance is also referred to as Car insurance. Under this policy, the insurer pays the costs incurred by a vehicle owner in such events in return for the premium paid by the vehicle owner annually. Certain policies also cover any damage caused to a third party or property. Obtaining auto insurance is mandatory in India.
What is the importance of auto insurance?
Driving a vehicle comes with its share of risks especially in a country like India which is notorious for reckless driving. In such a case, you will need a water-tight Car insurance policy in place which will pay for the costs. There are five key reasons why you must ensure that you select the right policy suited to your needs:
- A vehicle is expensive
Any vehicle, especially a car, is a prized possession of many and does not come cheap. Therefore, it is essential to take the right policy which will pay for the repair of the damages which are caused due to an accident. In the unfortunate event of theft of your car, you will be able to claim compensation under your policy.
- Reduces your liability when you cause the accident
A third-party liability auto insurance is mandated by law in a country like India where the incidents of road accidents are quite high. What this policy does is that it protects you from going out of pocket when you may have caused the accident. The insurer, in turn, pays for any damages incurred by the third party. Certain policies also pay for the costs incurred due to any lawsuit brought against you, including the legal fees incurred.
- It also protects youAuto insurance policies also provide a personal accident cover which is helpful in case you have been badly injured in the accident.
- Protects your family
In the unfortunate event of your death due to a motor vehicle accident, your survivors can also claim for payment of the insured amount under an auto insurance policy.
- Allows you to drive peacefully
Knowing that your vehicle is insured, you can drive around with a peace of mind, without being trapped in the constant fear that you will have to incur considerable costs in case of any damage to your car.
What are the tax benefits of auto insurance?
Unlike the tax benefits associated with other insurance policies, there is a catch involved when it comes to claiming tax benefits for a motor insurance policy. You are eligible to claim a tax deduction only when the vehicle is being used for commercial or business purpose. If the vehicle is being used for personal purpose, you will not be eligible to claim a tax deduction. While claiming the tax deduction when the car is being used for business purpose, one has to justify that there is no personal use involved in the same. Another essential point to be noted is that when a vehicle is being used partly for personal use and partially for commercial use, then the tax deduction can be claimed in proportion to the time for which the vehicle is being used for business purpose. To illustrate, if a vehicle is being used for 10 hours in total where 5 hours is for personal use and 5 hours is for business use, then the insured can claim the tax deduction for the 5 hours for which the vehicle has been used for a business purpose.
To claim the tax deduction, the insured must maintain all the documents such as fuel receipts, invoices for expenses for the car and premium receipts carefully.
You may be investing a lot of time and research to decide which vehicle you want to buy. But it is equally essential to ensure that you also procure the right auto insurance policy as that is going to be a real life-saver in various situations. That is why, you may want to cosider an Car insurance policy from Liberty General Insurance.