A Beginners Guide to Car Loan & Insurance

A Beginners Guide to Car Loan & Insurance

Having a car in today’s age has become a necessity rather than a luxury given the fast paced life and the need to commute easily. Though cab rental services are available, having your own car is better and more convenient. Moreover, the small car market is booming giving you affordable cars which are not too hard on your pockets. However, many still wonder, is buying a car better or renting it?

 

 

Let’s analyse the pros and cons of both buying vs renting a car –

 

Pros and Cons of buying a car

Pros Cons
Travel at your own convenience Considerable funds needed to buy a car
Ease of multi-destination trips Insurance premium expense
Instant availability Servicing costs and pollution checks

 

Pros and Cons of renting a car

Pros Cons
Utility of time Might not be available instantly
No need to drive in traffic Not cost-effective for regular commute
Car rentals are easily available for self-driving Rentals can be expensive

 

Though both buying and renting have their respective pros and cons, owning a car is always better and if you can afford it you should buy it.

 

Financing a car

Now that we know that buying a car is better, the question arises – How do you finance it? The answer is easy – through a car loan. If you don’t have sufficient savings at your disposal, you can always opt for a car loan. The loan is available for up to 5 years at an affordable rate of interest and allows you to finance your car easily.

 

What is a car loan?

A car loan is a loan which is offered by banks and non-banking financial companies to buy a car. The loan is offered for up to 90% of the car’s value and the remaining should be paid by you as down payment. The loan is secured against the car that you buy and has a low interest rate. You can repay the loan over a period of 5 years in affordable monthly installments. Prepayment facility is available under the loan wherein you can prepay the loan partly or fully if you get surplus funds.

Here is a free car loan calculator to calculate EMI for your car.

 

Why you should opt for a car loan?

A car loan makes sense because –

  • You don’t have to put a dent in your savings
  • It is easily available to finance your car
  • The repayment period is long and flexible
  • There are usually no prepayment charges
  • You can build your credit score if you repay the loan on time

Things to remember when opting for a car loan

Though a car loan is a beneficial way to finance a car, here are some important things which you should remember when availing the loan –

  • Shop around and choose a loan with the lowest interest rate
  • Keep your documents handy when applying for the loan
  • Understand the terms and conditions of the loan before you apply for it
  • Understand and calculate the charges associated with the loan
  • Don’t forget to get the car insured

Here’s a complete guide on how to manage your debts effectively

 

What is Car insurance?

When you buy a car, you need to buy a car insurance policy with it as well. The Motor Vehicles Act, 1988 mandate every car in India to carry a valid third party liability insurance cover on it. This cover is needed against any third party liability which you might incur if there is an accident and an individual is hurt or his/her property is damaged by the car.

Though a third party liability policy is mandatory, it does not cover the damages which your car suffers in any accident or if the car is stolen. In such cases too you suffer a financial loss. This financial loss can be covered by a comprehensive car insurance policy. A comprehensive policy is one which covers both third party liabilities and the damages suffered by the car thereby giving you an all-round coverage.

 

Which car insurance policy is better?

When comparing between third party and comprehensive plans, the latter wins hands down. A comprehensive policy is always better than a third party coverage because –

  • It offers a comprehensive scope of coverage
  • Theft of the car is also covered by the plan
  • There are various add-ons which enhance the coverage further

Add-ons available under comprehensive car insurance plans

As stated earlier, comprehensive car insurance policies offer a range of add-ons. Let’s have a look at some of the most popular add-ons which are available –

Name of the add-on Brief description
Return to invoice Pays the invoice value of the car in case of total loss or theft
Roadside assistance 24*7 assistance if the car breaks down in the middle of the road
Zero depreciation No deduction for depreciation in the case of claim
Engine protection Coverage against engine damage due to water-logging
Personal accident for passengers Personal accident cover for the passengers travelling in the car
Voluntary deductible Premium discount if you choose to pay a part of the claim yourself
No claim bonus protection Protection of the no claim bonus even if a claim is made
Accessories cover Cover for the accessories of the car in case of damage

 

So, if you want to commute hassle-free, invest in your own car. A car loan helps fund a car and is also affordable. When buying a car do opt for a comprehensive car insurance policy for a wide coverage against possible damages and stay financially protected. For a more comprehensive guide on buying and insuring your car, take this course on financial planning and get a better understanding.

 

Download a FREE Financial Planning Guide

 

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A Beginner’s Guide to Insurance

A Beginner’s Guide to Insurance

Uncertainties spell trouble especially when they involve a financial loss. Sudden death, medical contingencies and damages to your assets are some common uncertainties which might incur and cause a financial hardship. To cover these uncertainties and to compensate for the financial loss suffered, insurance is available.

 

 

What is insurance?

Insurance is a tool which compensates the financial loss suffered. It is a tool of risk management wherein you transfer your risks to the insurance company and if such risks occur, the company compensates you for the loss suffered.

 

How does insurance work?

Insurance works on the principles of pooling of risks and the probability of a loss. Individuals who face similar risks pool their risks together by buying insurance. They pay premiums for the policy which is pooled together. Thereafter, those policyholders who actually suffer a loss are compensated from the premium pool. Since the probability of loss is applicable for a few individuals, they can get compensated by the collective pool.

 

Why is insurance needed?

Insurance is needed simply for one reason – financial security. You cannot predict whether you would suffer a loss or not. However, you can prepare against the loss if it does occur. When you have insurance you have the financial security that if you suffer an uncertainty, you would not suffer any financial loss. Besides financial security, life and health insurance plans also give you tax benefits making them beneficial products.

 

Important aspects of insurance

Before buying a suitable insurance policy, you should know some of the important aspects of insurance which is common to all plans. These aspects are as follows –

Important aspects of insurance

 

 

Types of insurance plans

Insurance policies are broadly categorized into two different types – life insurance and general insurance.

Life insurance plans are those which cover the risk of premature death or living too long. Individuals buy a life insurance policy for a specific tenure and if they die during the tenure, the policy pays a death benefit. Moreover, there are plans which also pay a benefit if the individual survives till the end of the policy tenure.

General insurance plans, on the other hand, cover a variety of risks except the life of an individual.

Life and general insurance plans are further sub-divided into different types of policies. While life insurance plans have different policies for different financial needs, general insurance plans have different plans for covering different types of risks.

Have a look –

life insurance

general insurance

Types of life insurance plans in India

As you can see from the above chart, life insurance policies come in different variants. Here is a quick look at these variants –

Type of life insurance plan Brief description
Term insurance plan Covers the risk of premature death and provides financial security
Whole life plans Run up to 99 or 100 years of age and cover the risk of death during the tenure
Endowment plans Savings oriented life insurance plans which pay either a guaranteed death benefit or maturity benefit
Money back plans A variant of endowment insurance plans but where the sum assured is paid in installments during the policy tenure in the form of money backs
Child plans Insurance plans specifically designed to create a corpus for the child’s future even when the parent is not around
ULIPs Market linked insurance plans which provide the benefit of insurance as well as investment returns
Pension plans Retirement oriented life insurance plans which help you create a retirement corpus and also receive lifelong pensions

 

How to choose the best life insurance policy?

Since there are different types of life insurance plans, you should be careful in selecting the most suitable policy which fulfils your financial needs. Here are, therefore, some points which you should keep in mind when buying life insurance so that you can get the best policy –

  • The sum assured of the plan should be optimal enough to cover the family’s financial needs
  • The policy should match your financial goal
  • A long term policy should be taken for longer coverage
  • The premiums should be affordable
  • The insurance company should be reputed

Read a complete guide on how to plan your family’s financial future.

Health insurance

While there are different types of general insurance policies, a health insurance plan is an absolute must. The policy covers the medical costs incurred in a medical emergency and thus provides financial relief.

Types of health insurance plans

Like life insurance plans, health insurance plans also come in different variants to fulfil the coverage needs of different individuals. These variants are as follows –

Type of health insurance plan Brief description
Comprehensive health insurance plans These plans cover a range of medical costs and provide financial assistance in a medical emergency
Senior citizen health insurance plans These are health plans designed for individuals aged 60 years and above
Disease specific health plans These are health plans which cover specific diseases or the patients suffering from such diseases
Top-up and super top-up plans Supplemental health insurance plans which can be used to enhance an existing coverage at affordable premiums
Critical illness health plans These health plans cover a list of critical illnesses and pay the sum insured in lump sum if you suffer from any covered illness
Hospital cash plans These plans cover hospitalization for at least 24 hours. In such cases, a fixed daily benefit is paid

 

Insurance and tax benefits

As mentioned earlier, life and health insurance plans offer you tax benefits. Let’s have a look at these benefits –

 

Income tax Sections Tax benefit
Section 80C Premium paid to buy a life insurance policy is allowed as a deduction up to Rs.1.5 lakhs
Section 80CCC Premium paid to buy a pension plan is allowed as a deduction up to Rs.1.5 lakhs which includes deductions under Section 80C
Section 80D Premium paid to buy a health insurance policy is allowed as a deduction up to Rs.1 lakh
Section 10 (10D) Maturity benefit received from a life insurance policy is tax-free in your hands
Section 10 (10A) Commutation of pension from a pension plan is allowed as a tax-free benefit in your hands

 

Insurance is an important protection tool which you should have in your portfolio for financial security. Choose the suitable insurance plans depending on the risks you face and create your very own protection portfolio. For a detailed insight into insurance and its plans, you can take this course and get complete knowledge about insurance and its different aspects of financial planning.