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Jan 22, 2014, 12.14 PM IST | Source: Moneycontrol.com

Motor insurance for dummies

A vehicle is a valuable possession for its owner. Motor insurance is mandatory by law so every car or bike owner must have a motor insurance. But not all are aware about its features, what is actually covered and what is not.

Kripananda Chidambaram

Fintotal Insights and Resources

A vehicle is a valuable possession for its owner. Motor insurance is mandatory by law so every car or bike owner must have a motor insurance. But not all are aware about its features, what is actually covered and what is not.

Your vehicle can be covered under either Third Party Insurance or Comprehensive Car Insurance.

Third Party Insurance only covers your liability towards a third party in case of death, injury or property damage caused to them by your vehicle. It doesnt do any good to your vehicle. If you love your car or bike you must have a Comprehensive Insurance policy which covers both third party liability and damage to your vehicle. But this is not much of a worry since most private players offer only Comprehensive Insurance policy. The insurance policy is valid for one year. It becomes effective from the moment the payment of premium is received by the insurance company and ends at midnight exactly a year later.

Features of motor insurance:

Third Party Liability:
The basic third party liability covers damages caused by you to a 3rd party as mentioned above. You can be penalized or even your vehicle can be confiscated if you are found driving without having this in place. This covers damages you may need to pay to other cars or people for damaging / injuring them. Legal protection for death or injury claims from 3rd party and legal protection for damage to 3rd party property is also provided. In addition, by paying more premiums you can take additional protection for your car itself, the driver, and for other occupants of your car.

The policy excludes damage to your personal property and also expenses incurred without prior written consent.

Comprehensive Policy:
In addition to third party cover this includes loss/damage to vehicle as a result of natural calamities such as floods, earthquakes, fire, self-ignition and against man-made calamities such as accidents, theft, and terrorist activities. It also covers risks against riots and strikes and risk of loss/damage while in transit by road, rail, watercraft, air, elevator, etc. Accessories like music system, air-conditioner, etc. can also be covered by paying additional premium.

Some of the important exclusions are damage due to wear & tear, depreciation, mechanical & electronic breakdown, damage caused by person driving the car without a valid license and if driven under the influence of alcohol or drugs.

It definitely makes sense to opt for a comprehensive car insurance policy than just a third party liability cover. The insurance policy can be obtained through an agent or a development officer of the insurance company. Usually, the new car dealer is also an insurance agent. It is advisable to look for better deals from different insurance providers online instead of simply buying from the car dealer. In case of an accident, the insurance company pays for cost of damaged parts which needs to be replaced and the minimum labour cost to repair the vehicle. Depreciation for rubber/plastic/nylon parts is calculated at 50% and 30% in case of fibre glass components. The maximum amount payable would be the insured value of the vehicle.

Documents for motor insurance:
For new cars, Registration Certificate (RC) is needed. For renewals, RC along with previous insurance policy copy is needed. The insurance policy has to be renewed within the period of validity. Any delay in the renewal of the policy renders the policy invalid and you will not be able to avail any benefit of the policy. Also, driving without a valid insurance policy is a legal offence. In case you purchase a used car, you can transfer the existing insurance policy to your name by informing the insurance company within 14 days from purchasing the car.

Premiums:
Factors that determine premium include model, cubic capacity, area or locality of registration, expected usage in terms of mileage, theft rate, age of vehicle (if pre-owned), safety threat, etc. A new vehicle means higher insurance premiums. Although the insurance cover offered by different companies will remain the same based on IDV, insurance premium will vary.

IDV:
All vehicles are insured at a fixed value known as Insured Declared Value (IDV). This is determined on the basis of the sellers listed value for the model less a fixed depreciation for every year calculated as per the schedule of Indian Motor Tariff and the value of accessories.

Age of Vehicle

% of Depreciation

Not exceeding 6 months

5%

Exceeding 6 months but not exceeding 1 year

15%

Exceeding 1 year but not exceeding 2 years

20%

Exceeding 2 years but not exceeding 3 years

30%

Exceeding 3 years but not exceeding 4 years

40%

Exceeding 4 years but not exceeding 5 years

50%

There are three things you can do to reduce premiums: drive safely, avoid luxury accessories and dont make claims. Driving safely is important not only for cheaper insurance but also for your life. The logic for lower premium is that safer driving implies lower probability of accidents which means lesser number of claims for the insurer. Safe driving includes driving a vehicle that is safe, which comes with adequate safety gear such as air bags, seatbelts and antilock brake. If it is a pre-owned vehicle then choose one with a clean history of theft and accidents. Nominating driver/s and restricting use of the vehicle will help reduce rate.

Similarly adding luxury gadgets like night vision, ultra sound sensors, etc will increase your premium rate because theyre prone to getting stolen and theyre expensive.

If you have not made any claim from the insurance company in the previous years, premium can be discounted in the succeeding by up to 50% through no claim bonus during policy renewal. If youre buying a new car no claim bonus can be transferred to the new policy after intimating your insurer, within 3 years of selling the old car. If the policy has expired you can still avail it if policy is renewed within 90 days of expiry. Discount is made at the rates of 20% in the 1st year, 25% in the 2nd year, 35% in the 3rd year, 45% in the 4th year 50% in the 5th year.

Motor Insurance Claim Procedure:
In case of an accident claim the following documents are to be submitted to the insurance company.

  • Proof of insurance policy
  • Original and a copy of Registration Book.
  • Original and a copy of Driving License of the person driving the vehicle at the time of accident.
  • FIR in case of accident involving Third Party Injury or Damage.
  • Claim form along with the original estimate of repairs obtained from the workshop.
On submission of these documents the insurance company appoints a surveyor, who inspects the damaged car and verifies the authenticity of the estimate of repairs. The car can be repaired only after the insurance surveyor has inspected it.

Submit the final bill for damaged parts that have been replaced and the stamped receipt for payment made to the workshop. Once the car has been repaired, you need to make the payment as per the final estimate and submit the final estimate and stamped receipt to the insurance company for settlement of the claim. The repaired car is surveyed again by an insurance surveyor and only then you can take delivery of your car.

In case your car is stolen, you need to inform about the theft to the nearest police station and your insurance company immediately. You also have to intimate about the stolen car and missing documents to the concerned registering authority where the car was initially registered. Obtain a duplicate RC Book from the RTO office immediately. In case of theft, the procedure for the insurance claim is similar to the accident claim, however, in case of theft the settlement of insurance claim takes as longer as the RTO and the police is given a reasonable period of time to recover the stolen vehicle.

Remember:

  • Motor insurance is to be annually renewed by paying premiums. The policy (or copy) is to be kept in the vehicle at all times.
  • Vehicle insurance covers only book value of the damaged parts. So if your vehicle is older, the reimbursement may not cover full value of buying a new part.
  • Buying car/two-wheeler insurance from a vehicle dealer is usually expensive. Ideally, you should shop around (preferably online) between insurance providers and take the cheapest one.
  • If you have a good driving history, you can bargain with the agent to reduce premiums.
The author is a director at Fintotal Insights and Resources.

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