A few months ago, a colleague of mine drove into a flooded underpass during a heavy downpour. He managed to get out safely, but his car did not. The engine seized completely. Total repair cost: ₹1.6 lakh. When he filed his claim, his insurer came back with a single sentence that changed everything — “engine damage due to water ingression is not covered under your policy.”

He had car insurance. He had paid every premium on time. He had done everything right — except read the fine print before buying.

This kind of story is not rare. It plays out across India every monsoon season, every hailstorm, every time someone parks in the wrong place at the wrong time. The problem is almost never that people skip car insurance altogether. The problem is that they buy it without understanding it — and only discover the gaps when it is far too late to do anything about them.

I have been writing about personal finance and consumer rights for over a decade. And in that time, if there is one area where I have seen ordinary, educated, financially aware people consistently make expensive mistakes, it is car insurance. So today I want to lay out exactly what those mistakes are, how to avoid them, and how platforms like Square Insurance are making it easier than ever to get this right.

Understanding What Car Insurance Actually Does

Most people think of car insurance as a legal requirement — something you buy because the RTO demands it, not because you’ve thought through the risk. That framing leads directly to the kind of undercoverage that burns people later.

Car insurance is, at its core, a financial protection tool. It exists to absorb costs that would otherwise come entirely out of your pocket — repair bills after an accident, replacement costs after a theft, compensation to a third party after a collision, damage from floods or fire or falling trees. The question to ask when buying a policy is not “what is the cheapest option that lets me drive legally?” The question is “what financial risks do I face as a driver, and does this policy actually cover them?”

That shift in perspective — from compliance to protection — is the single most important thing I can offer you in this article.

Third-Party vs. Comprehensive: Getting the Foundation Right

Every car insurance conversation starts with this choice, and it is worth spending real time on it. Third-party car insurance is mandatory by law in India. It covers damage, injury, or death that you cause to another person or their property in an accident. What it does not cover is any damage to your own vehicle — not from an accident, not from theft, not from a natural disaster.

Comprehensive car insurance covers both. It handles third-party liability and also protects your own car from a wide range of perils: collisions, theft, fire, floods, earthquakes, riots, and more. For any car under eight years old, or any car whose repair cost you could not comfortably absorb from savings, comprehensive is the rational, responsible choice.

The reason so many people choose third-party only is simple: it is cheaper. But cheaper coverage that leaves your own vehicle completely unprotected is not a bargain. It is a deferred expense — one that arrives at the worst possible time, with no warning and no flexibility.

When you buy car insurance through Square Insurance, the platform makes this tradeoff genuinely visible. It does not just show you the price difference between third-party and comprehensive — it shows you what you are giving up for that saving. That kind of transparency is rarer than it should be in this industry.

Add-On Covers: The Decisions That Separate Good Policies from Great Ones

Once you have chosen comprehensive car insurance as your foundation, the next layer of decisions involves add-on covers. These are optional extras that you bolt onto your base policy, each one addressing a specific risk that standard comprehensive coverage does not include. Choosing the right combination is where most of the real value in car insurance comes from — and where most people either overspend or underspend.

Zero depreciation cover is the most important add-on for any car under five years old. When you make a claim under a standard comprehensive policy, your insurer pays for replaced parts after deducting for depreciation. A two-year-old bumper might only be reimbursed at 60% of its current replacement cost. With zero depreciation cover, you receive the full cost. For new and nearly-new cars, this add-on can save you tens of thousands of rupees in a single claim — often far more than its annual premium.

Engine protection cover is what my colleague needed and did not have. Standard car insurance explicitly excludes engine damage caused by water ingression, hydrostatic lock, or oil leakage — all of which are common outcomes of driving through waterlogged roads. If you live in Mumbai, Chennai, Hyderabad, or any other city where flooding during monsoon is a reality, engine protection is not optional. It is essential.

Roadside assistance cover provides emergency help when your car breaks down — towing, flat tyre assistance, battery jump-start, emergency fuel delivery, and minor on-site repairs. At a few hundred rupees per year, it is one of the most cost-effective add-ons available and one of the most immediately useful in everyday life.

Return to invoice cover pays you the original invoice value of your car if it is stolen or declared a total loss — not the depreciated current market value. In the first two to three years of ownership, when the gap between what you paid for the car and what the market currently values it at can be substantial, this cover ensures you are not left short.

No-claim bonus protection safeguards your accumulated NCB discount even if you make one claim during the policy year. This matters because the no-claim bonus — which grows from 20% after one claim-free year to 50% after five — is one of the most valuable discounts in car insurance. Losing it to a single minor accident is a painful and avoidable outcome.

Square Insurance allows you to build your coverage layer by layer, choosing add-ons based on your actual situation rather than a one-size-fits-all package. For a new car owner in a flood-prone city, the right combination might be zero depreciation plus engine protection plus return to invoice. For someone driving a five-year-old car in a dry climate, the priorities will look quite different. The platform helps you think through this rather than just defaulting to the most expensive bundle.

How to Buy Car Insurance Without Making the Mistakes Everyone Else Makes

When the time comes to buy car insurance — whether for a new vehicle or after deciding to switch insurers — the process is straightforward if you know what to focus on. Start with your IDV, the Insured Declared Value, which represents the current market value of your car and sets the ceiling on what you can claim. Insurers suggest a default IDV, but you can adjust it within an allowable range. Do not reduce it below what you would actually need to replace your car — the premium saving is not worth the coverage gap.

Next, compare insurers on more than just price. The claim settlement ratio, published annually by IRDAI, tells you what percentage of claims an insurer actually paid out in a given year. A ratio above 95% is a good benchmark. Check the number of cashless network garages in your city — a large network means you can get repairs done without paying out of pocket and waiting for reimbursement. Read customer reviews specifically about the claims process, because that is the only moment that truly tests an insurer.

Apply your NCB carefully. If you are coming from a previous policy — even with a different insurer — your no-claim bonus travels with you. Make sure it is correctly declared and applied to your new premium. This discount is yours by right, and missing it is simply leaving money on the table.

Buying car insurance online through Square Insurance eliminates the agent layer that has historically been responsible for a great deal of mis-selling in this industry. Every decision is visible, every term is searchable, and your policy document arrives in your inbox within minutes of completing payment.

Why Renewal Deserves More Attention Than It Gets

Far too many car owners treat renewing car insurance as an administrative chore — something to do as quickly as possible every year so the reminder stops appearing. That mindset means they miss the most valuable opportunity they have to reassess their coverage, update their IDV, add or remove covers, and check whether their insurer is still the right one.

Every renewal is a moment to ask: has anything changed? Is your car a year older, making certain add-ons less necessary? Have you moved to a city with different risks? Has your NCB grown, and is it correctly reflected in the renewal quote? Is your insurer’s claim settlement ratio still strong, or has it declined? When you renew car insurance through Square Insurance, your previous policy details are pre-loaded, making it easy to compare your existing coverage with alternatives and make a genuine, informed decision rather than simply clicking confirm.

One point that cannot be overstated: never let your policy lapse. Driving without valid car insurance is illegal and carries fines and licence suspension. More importantly, a lapsed policy means you are personally liable for every rupee of damage in an accident — third-party claims, your own repairs, medical costs — with no insurer to absorb any of it. If your policy lapses for more than 90 days, you also lose your entire accumulated NCB. Square Insurance sends renewal reminders well in advance precisely to prevent this — but the responsibility ultimately lies with you.

What the Best Car Insurance Actually Looks Like

After years of covering this space, here is my honest summary of what a genuinely good car insurance policy looks like. It is comprehensive, not third-party only. It includes zero depreciation cover if the car is under five years old. It includes engine protection if the owner lives in a flood-prone area. It is with an insurer whose claim settlement ratio is above 95% and whose cashless garage network is strong in the cities where the owner actually drives. It is reviewed annually at renewal rather than auto-renewed blindly. And it is bought through a transparent platform — like Square Insurance — where the decisions are yours to make rather than the agent’s to make for you.

The car insurance industry in India has historically profited from customer inertia. Digital platforms are changing that, but only for drivers who choose to engage. The tools are there. The transparency is there. The only variable is whether you decide to spend twenty focused minutes a year making sure your coverage is actually doing its job.

My colleague’s engine is fixed now. He switched to a comprehensive policy with engine protection cover and zero depreciation when he renewed. He told me it cost him about ₹3,000 more per year than his old policy. Given that his single uncovered claim cost ₹1.6 lakh, he has already decided that is the best ₹3,000 he has ever spent.

Your car insurance should work as hard as your car does. Take the time to make sure it does.