In the super competitive automobile segment, identifying your ideal car has become a herculean task. Your worries do not end here. After identifying the right car, comes the issue of purchasing the most suitable car insurance, which protects you from any eventuality. For many people, car insurance and terms of the policy are too difficult and technical to fathom.
There will be a lot of terminologies that you may not be aware of and the details they entail. Below is a break-down of what exactly a motor insurance policy is and what is covered and not covered in the policy.
A motor insurance policy is fundamentally divided into two parts: third party (TP) insurance and own damage (OD) insurance.
1. TP insurance only protects the vehicle owner against a third-party financial liability due to physical injury or death or damage to a third person, their vehicle or property
2. OD insurance pays for repairs of your own vehicle caused by an accident or due to a natural disaster
However, when you file an OD claim you may only get a partial amount of what is actually required to fix the damage. Why? There are various factors that are taken into consideration when your insurance company pays your claim amount. One of the major factors is depreciation of your vehicle and exclusions in your motor insurance policy, referred as gaps in your standard motor insurance policy here. Following are such gaps and ways to fix them.If your car is stolen, you will only be paid IDV
The Insured Declared Value (IDV) of your vehicle is the maximum amount your motor insurance policy will pay you. IDV states the current market value of your car. In case your car gets stolen or is damaged beyond repair, which is also known as a total loss, your insurer will pay you an amount that equals the IDV and your policy will lapse. However, IDV depreciates as your car gets older. Five percent depreciation is applicable to a new car as well.
For example, if you purchase a car for Rs 10 lakh and the car gets stolen in the first month, the insurer will only pay Rs 9.5 lakh. To indemnify yourself from this risk, purchasing an invoice price add-on is recommended with your standard motor insurance. If you buy this add-on, your insurer will pay you the actual amount of your car in the case of theft or total loss. However, this add-on is only offered to vehicles not older than two years.The standard motor insurance policy does not pay the full claim amount
A standard motor insurance policy only pays the claim amount after deducting depreciation on the part being replaced or repaired. The value of each part has been categorised and a certain amount of depreciation is charged on the same. The depreciation amount has been prescribed under the Indian Motor Tariff and is standard among all insurance companies.
For example, depreciation on a vehicle's plastic parts is set at 50 percent. So if you meet with an accident and the bumper of your car needs to be repaired, your insurer will only bear 50% of the cost while the rest will have to be borne by you. Depreciation makes a huge difference between the actual cost of repairing and the amount of claim reimbursed by your insurer. To bridge this gap, it is recommended that you purchase a zero depreciation add-on with your motor insurance policy. Having a zero-depreciation add-on in your policy will eradicate depreciation and your insurer will pay the full cost of repair. Zero-depreciation add-on premium might be a bit steep, adding about 0.4 percent to 1.5 percent of the IDV of your vehicle but is advisable since the claim amount will also be higher.Engine damage due to leakage and water ingression in not covered
If you live in an area where flooding is a concern, buying an engine protection add-on is advised. A standard motor insurance policy does not cover any damage caused to your vehicle’s engine due to oil leak or water ingression. This is where an engine protection add-on comes into play. It increases the protection bandwidth of your existing motor insurance policy by covering damage caused to the engine due to oil leaks or water ingression. This add-on is majorly important for older cars or for people living in rainy areas. This option is available with most insurance companies for around 0.15 percent to 0.20 percent of the IDV of your vehicle.
Buying an adequate motor insurance is important to safeguard yourself from any unforeseen risks that can burn a hole in your pocket. It is equally important to be well versed with the features of your vehicle’s insurance policy as doing so will only help you hedge the risk of financial loss at the time of need.The writer is Director of Policybazaar.com