9 Important terminologies that you should be knowing before you purchase a Car Insurance:
Ms Suhani Arya is a successful designer who works with a leading interior décor company. She is currently managing somehow with a two-wheeler, but she desires to buy a car as she moves up the career ladder. She does a primary research and finds the car of her choice. After that comes the turn of choosing the right car insurance for her vehicle. When she compares quotes given by different car insurance companies, the complex terms in the brochure makes her confused about which car insurance to buy.
This article explains the important terminologies used in Car/Motor Insurance Prospectus and helps Suhani and many others like her to get abreast with the terms for a happy insurance purchase experience.
Insured Declared Value (IDV) refers to the current market price of your vehicle. When you buy car insurance, the sum insured or the maximum amount which the insurance company is liable to pay on happening of the contingency is determined according to the IDV. In other words, IDV is the highest amount of loss that you can claim when your car gets stolen or gets damaged beyond repair. The IDV can be determined by looking at the manufacturer’s listed selling price of the car and is adjusted for depreciation at the time of renewal.
You should declare the actual IDV of your car while buying car insurance. It is so because a lower IDV may fetch you insurance at a lower premium initially but in the case of a loss you will receive proportionately lesser compensation.
2. Third Party Legal Liability
In the case of car insurance, you (insured) are the first party and insurer is the second party. The third party refers to any individual who may face death/any injury or whose property may be damaged on account of an accident with your car. If such thing happens then, it is your liability to compensate the third party for the financial loss. Third Party Legal Liability is covered under the Liability Insurance. The Motor Vehicle Act makes it mandatory for all the car owners to buy Liability Insurance.
Such an insurance does not provide you with any direct financial benefit, but it covers you against the legal liability of death/disability of third party or loss / damage to third party property. Under the Liability Insurance, there is unlimited coverage to Third parties injury, but you get an option to limit coverage for Third Party Property damage.
3. Comprehensive Policy & Own Damage Premium
While buying car insurance, in addition to the mandatory Third Party Liability insurance, it is prudent to get your car insured against the risk of loss or damage. An insurance policy which covers the risk of third party liability, as well as damage to the vehicle caused by events which are beyond your control, is known as Comprehensive Policy. In such a policy, you are required to pay Own Damage Premium in addition to Liability Premium. In the case of an accident, under the Own Damage Premium paid by you, the insurer would indemnify you for the expenditure incurred on replacement of damaged parts of the car. Own Damage Premium is determined by IDV, the age of the car, model, cubic capacity, geographical zone, past claim experience, etc.
4. Personal Accident Cover
When your car meets with an accident, not only your car gets damaged, but you may also get injured. Sometimes the accident may be so fatal to cause death or permanent disability. According to the National Crime Records Bureau statistics, in India, every hour 16 individuals lose their lives in road accidents. If you need to travel a lot in your job, then Personal Accident Cover becomes an inextricable part of your Comprehensive risk cover. It is not necessary that every car insurance policy should have inbuilt personal accident cover. Sometimes you need to pay an extra premium in addition to the own damage premium and liability premium to secure personal accident cover. Thus, when selecting a car insurance policy, you must ensure that your policy has personal accident cover.
5. No Claim Bonus
No Claim Bonus is a discount given to the insured at the time of renewal of car insurance for every claim free policy year. Such a discount is expressed in percentage and is given on Own Damage premium and not on Liability premium. A minimum 20% discount is offered as no claim bonus, but it may go higher to a maximum of 50%. However, there is a loss of No Claim Bonus upon making the claim in any policy year.
Concerning No Claim Bonus, some points need to be kept in mind. NCB is granted to the insured and not to his vehicle. So, if you sell your car to some other party, then only the insurance policy can be transferred to the new owner but not the No Claim Bonus. In contrast to this, you can carry the NCB benefit to be used for your newly purchased vehicle or when you change your car insurer on policy renewal.
6. Compulsory Deductible & Voluntary Excess
Compulsory Deductible is that part of the claim amount which should be borne by you and the balance claim will be paid by the insurer. This condition is applied to deter insured from approaching the insurer to pay off frivolous claims frequently. The amount of compulsory deductible depends on the cubic capacity of your vehicle and sometimes the insurer may raise the limit on policy renewal in case of high frequency of claims in the preceding year.
Suppose Suhani met with an accident and the car garage makes up a bill of Rs. 10000. The compulsory deductible in Suhani’s car policy is Rs. 3000. So, accordingly, Suhani should bear Rs. 3000 of the claim amount and the balance Rs. 7000 will be paid by the insurance company.
Voluntary Excess refers to the amount over and above the Compulsory Deductible which you may choose to pay from your pocket in the event of a claim.
As I continue with the above example, suppose Suhani opts for a voluntary excess of Rs. 2000. Then, in addition to a mandatory deductible of Rs. 3000, Suhani pays Rs. 2000 from her pocket. Consequently, the claim amount borne by her insurer is now reduced to Rs. 5000. The insurance company gives a discount on the Own Damage Premium if you opt for higher levels of voluntary excess.
While selecting a car insurance policy, don’t get lured by lower premium policies suggested by agents as the premium may be lower on account of higher deductible limits. So, carefully check and compare the policies for deductibles and excess before making a final choice.
7. Cashless Garage
Under ordinary circumstances, the customer gets his car repaired at a service station and later takes reimbursement from the insurance company for such repairs. But under Cashless Garage facility, you get your car fixed for accidental damages and the insurance company makes payment of its share of claim amount directly to the garage. Here the only condition is that the repair should be conducted in insurer’s preferred garage. When you buy car insurance policy, the insurer provides you list of preferred garages with which insurer has a tie-up. So, before taking your car for an accidental repair, do check whether the garage is enlisted in the panel of the insurer or not.
8. Anti-theft Device
Anti-theft Devices are those devices that lower the risk of your vehicle from being stolen. These days you can get these devices installed in your car, or you can purchase those cars which come with enhanced built-in anti-theft devices like anti-theft alarms, immobilisers and other systems. The advantage of Anti-theft Devices is that these reduce the probability of car thefts and can fetch you car insurance at a lower premium as compared to cars without anti-theft installations.
One point that you need to consider is that the Anti-theft Devices installed in your car should either conform to the specifications outlined or should be approved by the Automotive Research Association of India (ARAI).
9. Break in Insurance
You should get your car insurance policy renewed at the right time before the due date without any break in coverage. It is so because even a gap of a single day in renewal would subject your car to a detailed inspection by the insurance company. Moreover, if the gap extends by a period of 90 days then upon renewal you will be unable to carry the benefit of No Claim Bonus earned in the prior policy period.
The fundamental purpose of car insurance policy is to cover you against the risk of own damage as well as third party liability. Selection of right car insurance policy is a complex and analytical task in itself, but If you follow some of the simple guidelines mentioned above the process becomes easy & seamless.