In car insurance, an exclusion is a provision under the policy that removes the coverage for a specific kind of risk. This actually narrows down the extent of coverage offered under the insurance. Most car insurance policies have a wide range of incidents that are covered. Insurance providers make use of the exclusions clause to carve away the risks that they are not willing to insure.
Why Do Car Insurance Contracts Have Exclusions?
Exclusions in car insurance have various purposes. Most of these fall under one of the following categories:
- Catastrophic exclusions - This includes the risks that can affect a large number of people at the same time. So, it poses a great loss to the insurance company. An example of such a risk is nuclear war.
- Alternate coverage - These risks are not included under a specific type of auto insurance plan because they are offered under another scheme.
- Easily controllable risks - This includes events that can be controlled easily by the policyholder if he/she is careful. For instance, an event like damage to the insured vehicle due to snow or rain is a controllable risk.
- Intentional/Non-accidental damages - Intentional damages are always excluded from the coverage of auto insurance.
- Wear and tear - From the perspective of the insurance company, it does not make sense to cover unavoidable events like the normal wear and tear of the insured vehicle. This risk can, however, be controlled to a certain extent through proper maintenance of the vehicle.
- Illegal activities - If a policyholder uses the insured vehicle for an illegal activity, the damages suffered by the vehicle are not offered insurance coverage.
- Insurable with add-ons - These risks are the ones that can be included under the coverage of an auto insurance plan after the payment of extra premium. Some of the add-on covers offered by car insurance companies include engine protect cover, zero depreciation cover, return to invoice cover, etc.
The coverage under car insurance policies are subject to change periodically. So, you should get in touch with the insurance company at the time of policy renewal to check if there have been any updates to the coverage. Otherwise, you may have to bear significant losses at the time you raise a claim.
The Policyholder’s Share
If you are uninitiated about the coverage under your auto insurance policy, you may be under the impression that you are liable to receive the entire amount you claimed under your policy. However, the truth is that you will always have to bear a certain part of the claim amount, irrespective of the coverage of your plan.
So, what are these charges that you will be bearing? Let us take a closer look:
- Compulsory deductible - This is a fixed part of the claim amount that you have to bear for each claim that you raise. This amount is dependent on the engine capacity of the vehicle, as shown below:
|Engine capacity||Compulsory deductible amount|
|Up to 1,500 cc||Rs.1,000|
|Above 1,500 cc||Rs.2,000|
The insurance company can charge a higher amount as compulsory deductible if the vehicle is too old. The compulsory deductible factor does not have any impact on the car insurance premium, as the premium amount depends on several other factors such as the make and model of the car, the Insured Declared Value (IDV), etc.
- Voluntary deductible - This is a deductible that the policyholder opts for at the time of policy purchase. The insured agrees to pay this amount to the insurance company in the event of a claim. This amount is chosen by the policyholder based on the risks associated with the vehicle and his/her affordability.
The voluntary deductible amount is inversely proportional to the premium for car insurance. So, if a policyholder opts for a high voluntary deductible, his/her car insurance premium will be a lower value. Choosing voluntary deductibles is a great way to bring down your premium, provided that you use it wisely.
- Depreciation - All vehicles reduce in value with age. This is referred to as depreciation. Depreciation is also applicable on vehicle parts. So at the time of a claim, the insurance company will take the depreciation of replaced car parts into consideration and exclude this from the claim payout. In effect, the car owner will have to bear the depreciation amount for replaced car parts.
- Towing charges - There are specific limits on the towing charges that can be claimed under your car insurance policy. Any amount beyond the cut-off will have to be borne by the policyholder.
- Consumables - These are substances that are used in vehicles and will be rendered unfit for consumption thereafter. Some examples of consumables are screws, nuts and bolts, grease, distilled water, engine oil, etc. The policyholder will have to pay for the consumables used for repairing the vehicle.
- Existing damages - Some car owners do not raise claims immediately after a damage has occurred. They wait to file a single claim for the damages accumulated over a period of time. You should be aware that the insurance company may reject such a claim, as the car insurance agreement states that existing damages are not covered. The insurance policy allows you to raise a claim as and when your car suffers a damage. You can also raise multiple claims under car insurance. But do not wait to raise claims for accumulated damages, as this may not be entertained by the insurer.
You can mitigate the effect of some of the above mentioned exclusions by opting for appropriate add-on covers. For instance, the depreciation of car parts can be offered coverage if the policyholder opts for a zero depreciation add-on cover. However, the compulsory deductibles amount will have to be borne by the insured for all claims.
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GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017