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The Budget 2006-'07 came with a big bang and the Finance Minister; P Chidambaram included a few more new changes. The excise duty on small cars were reduced to 16% from 24% with the intention to make India a hub for small car manufacturing. This has given the middle class consumers a golden opportunity to own a car. Due to this cut in excise duty, the sales of cars have shot up recently. Insuring your car becomes mandatory as soon as you buy it. The public sector, general insurance companies, which enjoyed monopoly until five years ago, is now facing strong rivals. The small cars here are defined as petrol cars with engine capacity not exceeding 1200cc/diesel cars with engine capacity not exceeding 1500cc and having length not exceeding 4 metres. The cubic capacity, use of car, normal area of operation and the value of car proposed for insurance decide the premium payable and also various extensions opted for.

Just as the Insurance Regulatory and Development Authority (IRDA) sets guidelines for life insurers, for motor insurance policies, it is India Motor Tariff (IMT) that sets guidelines. The IMT introduces new features and services as per the changing situations.

Like a mediclaim policy, a motor insurance policy is in force for one complete year. After the completion of one year the policyholder can renew the policy. The No Claim Bonus (NCB) is used to renew the policy, which offers upto 20% bonus. It is possible only if there has been no claim made during the active period of the policy. It is necessary to renew the policy within 90 days after the expiry of the one-year term of the policy. There are two types of deductibles that can be applied to an insurance policy - compulsory deductibles (CD) and voluntary deductibles (VD).

CD is the amount of loss that the insured has to compulsorily bear in each and every claim depending on the type of claim. Any excess amount higher than the CD that the insured voluntarily pays is termed as voluntary deductible.

Under the provisions of Motor Vehicles Act all the vehicles running in public places must compulsorily have an insurance policy that covers the third party liability. There are two types of policies available for motor vehicles - third party insurance (Motor Policy A) and comprehensive insurance policy (motor policy B).

The third party insurance (motor policy A) covers injury and property damage caused by your vehicle to any pedestrians, occupants of other vehicles etc. the insurance policy does not cover the harm caused to your own vehicle. The Comprehensive Insurance Motor policy (motor policy B) covers not only the damage caused to the third party but also to your vehicle if any damage has been caused. In addition to the third party liability, a comprehensive insurance policy also covers the loss or damage to the owner's vehicle (it covers accident, theft, and specified perils). Due its additional protection, the premium that has to be paid is higher.

It is considered a wise decision to opt for Comprehensive Insurance Motor Policy since it covers maximum liabilities.