The Motor Vehicles Act makes it necessary for all vehicles on the roads in India to have a valid motor insurance policy. Driving an uninsured vehicle is punishable by law. So, it is imperative that you buy a suitable insurance cover for your beloved set of wheels.
At the time of insurance purchase, one of the most common issues faced by customers is the difficulty in understanding the coverage offered by the plan. The legal terms and confusing jargons in the policy documentation only add to the woes.
Here, we attempt to clarify some of the common terminologies used in car insurance documentation, so that you have an easy policy purchase experience.
- Third-party liability cover - This is a part of your motor insurance policy that compensates a third party for an accidental injury, death, or property damage. While the insurance cover for third-party injuries or death is unlimited, there is a cap of Rs.7.5 lakh on the coverage offered for third-party property damage. This insurance cover is also available as a standalone policy that can be purchased from your motor insurance provider at a lower cost. Third-party liability insurance is the minimum level of insurance required for a vehicle to be legally used on the roads. This cover is also referred to as ‘act-only’ policy or ‘liability-only’ insurance.
- Own Damage (OD) cover - This is a part of the motor insurance policy coverage that protects the vehicle from damages due to accidents, fire, theft, natural calamities, and man-made disasters. This part of the motor insurance coverage does not include the liabilities for third-party injuries, death, or property damage. So, for instance, if your car meets with an accident that causes damages to the vehicle itself, the expenses incurred for the damage repair will be borne by the insurance company. In case a third party was injured in the accident due to your negligence, your motor insurance policy will offer compensation. But this will be triggered by the third-party liability cover under the plan, not the own damage cover.
- Legal liability - When your insured car is involved in an accident in which a third party suffers damages, you are legally liable to pay for those damages. If your vehicle is equipped with a car insurance policy, the third-party liability cover under the insurance will fulfill the legal requirement of compensating the victims. The settlement of a third-party liability claim is done in a Motor Accident Claims Tribunal, unlike that of an own damage claim.
Comprehensive policy - A comprehensive is an all-inclusive cover that protects the insured vehicle and the owner from various incidents. The coverage under such a plan includes the following:
- Explosion, fire, lightning, self ignition
- Theft, burglary, housebreaking
- Strikes or riots
- Hurricane, typhoon, flood, cyclone, inundation, tempest, hailstorm, storm, frost
- External accidents
- Malicious activities
- Terrorist acts
- Damages to the insured vehicle while in transit via rail, road, inland waterways, lift, air, or elevator
- Rockslides and landslides
- Liabilities to a third party in an accident - This includes accidental injuries, death, or property damage
- Anti-theft device - An anti-theft device reduces the probability of theft of your vehicle. If you have installed an approved anti-theft device in your vehicle, insurers consider this as a sign of reduced risk for its insurance. Hence, you are liable to receive an own damage premium discount. Some of the most commonly used anti-theft devices are steering wheel lock, electronic immobiliser, car alarm, vehicle tracking system, and tyre lock.
- IDV - The Insured Declared Value (IDV) of a vehicle is essentially the sum insured under its motor insurance. It is equal to the manufacturer’s listed selling price of the car less the depreciation with age. The listed price of the car is agreed upon at the time of policy inception. If the vehicle is later upgraded with new accessories that were not offered by the manufacturer, these will have to be insured separately. The IDV for such accessories will be the listed price of the accessories adjusted for depreciation with age.
- Voluntary deductibles - At the time of purchase of a car insurance policy, you can opt to bear a part of all claim payouts. This facility is similar to co-pay in health insurance. The amount that you agree to pay is referred to as voluntary excess or deductibles. If you opt for a high voluntary deductible value, you can avail a considerable discount in motor insurance own damage premium.
- Compulsory deductibles - A compulsory deductible is a part of the car insurance claim amount that you will have to pay mandatorily. This value depends on the cubic capacity of the vehicle. Compulsory deductibles are used by car insurance companies to prevent car owners from raising frequent claims, particularly for small damages. When compared to the voluntary excess, the compulsory deductible value is usually a small amount, and can be easily borne at the time of a claim.
- No Claim Bonus (NCB) - The No Claim Bonus is offered to the policyholder at the time of car insurance renewal. This benefit is provided only to customers who refrain from raising own damage claims in a policy year. The schedule for earning NCB is based on the guidelines from the Insurance Regulatory and Development Authority of India (IRDA):
- Cashless garage - Car insurance companies today are affiliated to garages across the country where cashless claim settlement facility is offered to customers. Such service centres are referred to as network garages. If a policyholder has met with an accident while using his/her insured car, he/she can get it repaired at a network garage for hassle-free claim settlement. In this scenario, the insurer settles the repair bill directly with the network garage. The policyholder will only have to pay the amount corresponding to deductibles and depreciation on replaced car parts.
- Endorsement - An endorsement is an update made to the coverage of a car insurance policy after its commencement. Endorsements can be premium-bearing or non premium-bearing updates. Premium bearing endorsements are made for ownership transfer, addition of CNG/LPG kit, correction of the ex-showroom price of the car, removal of anti-theft device, installation of electrical accessories, removal of automobile association membership, etc. Non premium-bearing endorsements are made when there is a change in the registration number, customer’s address, nominee details, customer contact details, etc.
- Break in insurance -Break in insurance is a situation that you are faced with when you forget to on time. The policy will move into lapsed status and the insurance company will renew the insurance for the car only after an elaborate vehicle inspection. The coverage will commence post the payment of premium.
- Personal Accident Cover - The Personal Accident Cover is a part of the comprehensive car insurance package that safeguards the owner driver of the insured vehicle from accidental disabilities and death. Some insurance companies also offer this cover along with the third-party liability insurance plan. If required, the policyholder can choose to buy personal accident cover for the named passengers by paying extra premium.
Add-on covers - These are insurance plans that you can opt for separately by paying additional rider premium. If you have a comprehensive car insurance policy, you can enhance its coverage by choosing appropriate add-on covers. Some of the most popular add-on covers in motor insurance are as follows:
- Zero depreciation cover - When car parts are replaced following an accident, the insurer deducts the depreciation on these parts and pays the remaining value as claim payout. If the basic car insurance policy is enhanced with a zero depreciation cover, the insurance company will not deduct any depreciation on car parts. The policyholder, hence, receives the entire price of replaced parts. Zero depreciation cover will not be applicable in the case of a car theft.
- Roadside assistance cover - This is a very useful add-on cover that offers you emergency services such as towing your vehicle to a nearby service station, arranging for alternate transportation, providing ambulance services, changing flat tyre, arranging hotel accommodation, etc. It comes in handy if you happen to be stranded in a desolate place with a vehicle issue. You will just have to call your insurance provider and request for help. The insurance company will get in touch with the network garage nearest to your location and send immediate assistance.
- Engine protect cover - This add-on cover is appropriate for vehicles that are usually parked in areas prone to waterlogging. A comprehensive car insurance policy does not offer you coverage against engine damages. The engine protect add-on cover pays for damages to your car’s engine, making it an invaluable investment.
- NCB protect cover - The NCB accrued under your car insurance will be reinstated if you raise a claim under the policy. This can amount to a significant loss, particularly if the policyholder had accumulated 40%-50% NCB discount. The NCB protect cover enables you to retain your hard-earned NCB even after a claim.
- Return to invoice (RTI) cover - This is an add-on cover that will be extremely useful in the event of a car theft. The RTI add-on cover offers you the the original invoice value of the vehicle if it is stolen. This includes road tax and registration charges. If the policyholder has not purchased Return to Invoice cover for the vehicle, he/she will only receive the IDV of the car as claim payout.
It is not mandatory to be in possession of a comprehensive car insurance policy. However, it is highly recommended to buy one in case you drive often or travel long distances in your vehicle.
Let us take an example of a car insurance claim worth Rs.11,000. If the compulsory excess for the car is Rs.1,000, the policyholder will have to pay that amount. The insurance company will pay the remaining amount, i.e., Rs.10,000. However, if the policyholder had opted for a voluntary deductible at the time of policy inception, he/she will have to pay that amount as well. So, if the voluntary deductible amount is Rs.2,500, the insurer is liable to offer only Rs.7,500 as claim payout. You should note that opting for a voluntary deductible of Rs.2,500 can give you a premium discount of up to Rs.750. Insurers offer premium discounts in slabs, and based on the amount of voluntary deductible chosen, the car owner can avail up to Rs.2,500 in discount. This, however, depends on the cost of the vehicle and the own damage premium for its insurance as well.
|NCB offered||Percentage of OD premium|
|At the first year renewal||20%|
|At renewal after two claim-free years||25%|
|At renewal after three claim-free years||35%|
|At renewal after four claim-free years||45%|
|At renewal after five claim-free years||50%|
It should be noted that the NCB is offered as a percentage of the own damage premium and it varies between 20% and 50%, based on the number of claim-free years observed. Effectively, if you have not raised any claims for five consecutive years, your own damage premium will be halved. From the customer’s perspective, this is a very attractive benefit.
If the policyholder gets the vehicle repaired at any local garage outside the network of the insurance company, he/she will have to foot the bill after the repair work. He/she can then raise a reimbursement claim with the insurance company by submitting all bills and relevant documentation. The insurance provider will reimburse the expenses after claim approval.
With the aforementioned information, you will be able to untangle the processes/outcomes defined in a car insurance policy document. It is crucial to read through your policy documentation thoroughly and get clarifications from the insurance company, if needed.
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