Insurance is like a spare tyre. You may not require it, but not having one is not an option.
  • Things to know about Bumper to Bumper Car Insurance Policy

    A comprehensive car insurance would seem like the ideal plan that you can opt for. Given that it provides third-party liability coverage, own-damage cover, and protection against fire, theft, vandalism, and the like, the advantages of buying comprehensive insurance are many. However, there are certain exclusions to a comprehensive auto insurance policy that you should be aware of.

    In the unsettling event of an accident, it can be quite frustrating to realise that your comprehensive car insurance only covers a part of the expenses. This is because the insurance company does not offer you the entire claim amount. The amount that you are eligible to receive would not include the following:

    • Compulsory Deductibles - A compulsory deductible is a predefined amount that the car insurance provider deducts from your insurance claim.
      • This value depends on various factors, such as the cubic capacity of the engine, age of the vehicle, make and model of the car, etc.
      • Compulsory deductible has no bearing on the car insurance premium of the vehicle.
    • Voluntary Deductibles - At the time of policy purchase, the car owner and the insurance company agree upon the percentage of voluntary deductible under the policy. This is based on the risk bracket under which the car falls and the amount the car owner is able to afford.
      • Effectively, the voluntary deductible is a part of the claim amount that the policyholder pays in the event of a claim.
      • Following the payment of the voluntary deductible, the car insurance kicks in and reimburses the remaining claim amount to the policyholder.
      • Opting for a higher voluntary deductible ensures that your car insurance premium is lower.
      • A confident driver with a good disposable income can opt for a higher voluntary deductible, as this reduces his/her regular premium, providing substantial savings in the long run.
    • Depreciation - Depreciation is the reduction in value of your vehicle over time. The depreciation depends on the age of your car and the wear and tear it suffers. Depreciation is directly proportional to the Insured Declared Value (IDV) of the car, and it hence, affects the insurance premium.

    Bumper-to-Bumper Cover

    The regular wear and tear of a vehicle is not covered under a comprehensive car insurance policy. Hence, in the event of a claim, the damage incurred by the vehicle will not be fully compensated by the insurer. Also, consequential damage is not covered under a comprehensive policy. An example of consequential damage is engine damage due to hydrostatic loss. This is effectively an indirect result of a direct loss.

    • When the policyholder raises a claim, the insurance company will apply the depreciation to the damages sustained by the vehicle and decide on the final amount to be paid.
    • The difference between the market cost of the new part and the depreciated value (paid by the insurer) will be borne by the policyholder.
    • It should be noted that the amount corresponding to depreciation can be a substantial percentage of the total claim.
    • The best way in which you can gain immunity from depreciation is by opting for a bumper-to-bumper add-on cover.

    This policy, also known as Zero Depreciation cover, offers 100% coverage for all metal, rubber, and fibre parts of the car. There will be no deductions pertaining to depreciation at the time of a claim. However, the policyholder will be required to pay an additional premium to avail the coverage under this rider.

    For example, if the workshop charged you Rs.50,000 for the damages incurred by your car in an accident, you may have to pay Rs.25,000-30,000 for the depreciation of the vehicle parts. This is the case when you only have comprehensive car insurance. But, if you have supplemented the comprehensive insurance policy with an add-on Zero Depreciation cover, there will be no deductions on the claim amount based on depreciation.

    Why is it so popular?

    Zero Depreciation cover is the most popular add-on plan in car insurance. The rider is also referred to as Nil Depreciation cover or Depreciation Waiver policy by different insurers. This rider is particularly beneficial to first-time car owners because it uncomplicates the claim payout process by providing coverage for the depreciation part of the claim as well. Owners of high-end cars are also increasingly opting for this plan, as it offers coverage for the costly components of the vehicle.

    Limitations of Zero Depreciation Cover

    Nil Depreciation cover has several limitations. Coverage is not offered under the plan in the following scenarios:

    • Cars that are more than 3 years old.
    • Engine damage due to oil leakage or water ingression.
    • Wear and tear to tyres, bearings, clutch plates, etc.
    • Private vehicle being used for commercial purposes.
    • Claim was not raised within the specified time.
    • Driving under the influence of alcohol or any other intoxicants.
    • Driving without a valid license.
    • Illegal or malicious driving.

    Additionally, there are restrictions on the number of claims that will be covered under the rider. It should also be noted that there is a compulsory deductible component to a claim. Irrespective of whether a bumper-to-bumper plan is chosen or not, the policyholder will have to bear the expenses corresponding to this deductible.

    In a nutshell, a bumper-to-bumper plan is a useful add-on cover that can be used to enhance the protection you receive from your car insurance plan. You will have to pay an additional premium to benefit from this rider, but it will certainly prove to be useful in the unprecedented event of a claim.

    GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017

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