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Posted by Royal Sundaram on 18 Jun 2015
In India, the Motor Vehicles Act prescribes that all the vehicles plying on public road should have insurance covering at least third party liability. This is irrespective of whether the policy covers damages of the owned car.
Car insurance policy offers you insurance cover for accidental damage caused to your car, or injury to third parties or damage to third party property. Before buying a policy it is really important that you understand the jargons Insurers use. Learning the terminology will help you clearly understand the cover and make an informed decision. Here’s a look at the most important terms you should be familiar with:
1. Own Damage (OD)
This covers loss or damage to the vehicle insured due to accident including Fire, theft etc in addition to Third Party Liability for bodily injury and/ or death and Third Party Property Damage. In case of an accident, an own damage cover in your motor insurance policy compensates you for expenses incurred to repair /replace parts damaged in the road accident
2. Third Party Insurance (TP)
Third-party insurance or third-party liability cover, which is sometimes also referred to as the ‘Act Only’ cover, is a statutory requirement under the Motor Vehicles Act.
It is referred to as a ‘third-party’ cover since the beneficiary of the policy is someone other than the two parties involved in the insurance contract, that is, the insured and the insurance company. The policy does not provide any benefit to the insured; however it covers the insured’s legal liability for death/disability of third party or loss / damage to third party property.
3. Legal Liability
A Third Party Liability means the amount of compensation a vehicle owner needs to pay to third parties who suffered injuries or damage to property, in an accident involving the insured vehicle. The claimants include legal heirs of the person who died in the accident. Since the liability is legally enforceable it is known as legal liability.
4. Comprehensive Cover
Comprehensive car insurance cover will protect you against any accidental loss or damage to the Private Car caused by the following unforeseen events:
· Fire, explosion, self ignition or lightning
· Burglary, housebreaking or theft
· Riot or strike
· Earthquake (fire and shock damage)
· Flood typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost
· Accidental external means
· Malicious act
· Terrorist activity
· Whilst in transit by road, rail, inland- waterway, lift, elevator or air
· Land slide, rock slide
This cover also includes the liability to Third Parties as indicated in the ‘Third Party Insurance’ cover explained above.
Comprehensive cover is not mandatory, but it is good to get this cover to protect your car against the above unforeseen incidents.
The Insured’s Declared Value (IDV) of the vehicle will be deemed to be the ‘SUM INSURED’ for the purpose of vehicle insurance. It is to be fixed on the basis of manufacturer’s listed selling price of the vehicle proposed for insurance at the commencement of insurance /renewal and adjusted for depreciation based on the age of the vehicle .
The IDV of accessories, if any, fitted to the vehicle but not included in the manufacturer’s listed selling price of the vehicle needs to be insured separately. The purchase price of the accessories duly depreciated for age will be the IDV for such accessories.
6. Compulsory Deductibles
In case of a claim made by you for accidental damage to your car, You, as a car owner, are expected to bear a small part of the loss and this amount is termed as Compulsory Deductible. This also prevents the owner of the car from preferring very small claims and sometimes frivolous claims. It is usually fixed on the cubic capacity of the vehicle insured and ranges between Rs 1,000 and Rs 2,000.
7. Voluntary Excess
When you purchase a car insurance policy, you can opt to co- pay a part of the final claim amount payable to you, after deduction of the compulsory deductible mentioned above. If you opt for this, you are eligible for a discount on your ‘Own Damage’ premium.
For instance, if the liability of an insurance company works out to Rs 10,000, and the Compulsory deductible is Rs 1,000, the customer will be eligible to get Rs 9000 towards that claim. If the customer opts for a Voluntary deductible of Rs 2500, the net amount he/she will be eligible for will be Rs 6,500.
By opting for this voluntary deductible of Rs 2,500/- the customer will be offered a discount upto Rs 750.
The voluntary deductibles come in six slabs ranging between Rs 1,500 and Rs 15,000 and customer will enjoy a maximum discount upto 2,500 (depending upon the value of the vehicle and own damage premium)
8. NCB (No Claim Bonus)
It is a benefit given to a customer, at the online car insurance renewal of a policy, if the customer has not made any ‘Own Damage’ claim in the expiring policy. The NCB is denoted in % and is applied on the ‘Own Damage’ premium of the policy and ranges between 20% and 50% depending upon the number of ‘Claim Free’ year record of the customer. You will pay significantly lower premium in case you enjoy higher slabs of NCB.
9. Anti-Theft Device
An anti-theft device, is a device that reduces the chances of your vehicle from being stolen. Purchasing a car with such a device installed in your vehicle would be a step in the right direction and insurers consider this as a good risk and reward these owners by offering a discount on the premium.
If there is any change to be made in your insurance policy, it can be made by way of an endorsement. These changes may arise due to additions to your car like a music system or any inclusion of financier’s name where the vehicle is Hypothecated or change in ownership due to sale of vehicle. All these and other changes to a policy can be made by way of an endorsement.
11. Cashless Garage
Normally, a customer has to get the car repaired, pay for such repairs and get the eligible amount reimbursed by an Insurer. Under a cashless claim, after completion of accidental repair at company’s preferred garage, Insurance company will make payment of their share of the loss directly to the garage. The customer will have to pay just the excess mentioned in the policy and towards the depreciation of parts.
12. Break in Insurance
If you forget to renew your Car insurance in time and allow the policy to lapse, it results in ‘Break in Insurance’. Insurance Renewal of such vehicle will be done post vehicle inspection and payment of premium. The insurance cover will commence post this inspection and payment of premium.
The private car Comprehensive policy covers additional risks/ contingencies and these can be availed on payment of additional premium.
13. Personal Accident Cover
While the owner/insured gets a Personal Accident cover as part of the comprehensive policy, there is an option to avail PA cover for your driver and other passengers who might travel in your car, upto a sum insured of Rs 2 lacs per person.
Add on covers:
It is an optional extension of your car’s comprehensive Insurance Policy. Add-on’s are additional benefits and coverage options available to you on paying additional premium. Depreciation waiver , No claim Bonus Protector, Engine Protector and Return to Invoice are a few popular add on covers available in the Indian market.
14. Windshield Cover
If the Windscreen glass (front and / or rear) of the insured vehicle accidentally breaks and needs to be repaired / replaced, an Insurance Company allows such repair / replacement without No Claim Bonus getting affected. This will not be treated as ‘own damage’ claim and will not affect your No claim Bonus next year
15. Loss of Baggage Clause
If the Baggage carried in your car gets stolen or if it gets damaged in a road accident, the Insurance company covers such losses if this add on cover is opted for.
16. Depreciation Waiver Clause
Normally, when a car meets with an accident and if some parts are to be replaced, the Insurance Company deducts an amount on such parts towards depreciation. If you avail the Depreciation waiver cover, the Insurer will not deduct this depreciation and you will be entitled to the full price of the parts replaced.
17. Facilities in lieu of Spare Car Clause
In the unfortunate even of accident where your car is undergoing repairs, you will be severely constrained in your movement. To overcome this difficulty, this add on cover offers you a fixed daily monetary compensation that will enable you to hire a vehicle or make alternate transport arrangements.
18. Full Invoice Price Insurance Clause
In case of a Total Loss to a Car or in case of Theft of the car, the Insurance company will compensate the owner with the insured value of the car. This insured value (IDV) is the depreciated value and will not reflect the current price of a new car. If the customer plans to buy a new car, he/she will have to make arrangements for the difference between the price of a new car and the amount of claim settled by the Insurer. By opting for this add-on cover, the vehicle is insured for its replacement price and in case of a total loss or theft, the customer will be getting the full value that the car was insured for.
19. Roadside Assistance
If you are stranded on the road, Road side assistance cover offers you emergency Mechanical and electrical services apart from facilities like arranging alternate transport, towing, arranging for hotel accommodation, ambulance services, changing a flat tire or unlocking your car if you accidentally leave your keys inside etc.
Now that you are familiar with some of the important jargon, it is time to research the various types of vehicle insurance policies available and make an informed decision by clearly understanding the cover and the terms and conditions.
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