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| Auto insurance: Frequently asked
questions |
Now that most auto companies have reduced the cost of their cars and
with interest rates also on a downswing isn't that often-dreamt-about
car within your reach? While you may know what car best suits your
needs, taste and budget you may not yet be worrying too much about
insuring your dream car right now.
If you really haven't thought about insuring your car yet, then it is
about time you did. For according to a 2007 data released by World Road
Statistics -- an independent global organization that compiles road
accident statistics -- as many as 94,985 Indians died in road accidents
in the year 2005.
While motor insurance may not help save lives, it can help in saving you
a lot of trouble in case -- God forbid -- your vehicle is involved in an
accident. Hence the need for motor insurance.
What is motor insurance? Is it mandatory for a vehicle to be insured?
Motor or car insurance is a contract between a vehicle owner (you) and
the insurance company (any insurance company that offers auto insurance)
where the insurance company agrees to pay a sum of money to compensate
for loss arising from accidents.
There are two types of motor insurance covers: Third Party and
Comprehensive insurance.
Third party insurance covers only damage caused by the vehicle to other
people or property.
The third party car insurance policy covers a vehicle owners legal
liability for any compensation to be paid arising from any accident
caused by the use of the vehicle. These include:
Death or physical injury to a third party person
Damage to third party property
The liability is covered for an unlimited amount in case of death or
injury. Damage to third party property is covered by the insurance
policy as follows: up to Rs 1 lakh for private vehicles, scooters, and
motorcycles and up to Rs 7.5 lakh for commercial vehicles.
In addition to the cover provided by the Third Party car insurance plan,
the Comprehensive insurance policy protects you against any loss or
damage caused to the vehicle and its insured accessories due to natural
and man-made calamities.
Another mandatory feature is the third party legal liability cover. It
protects the owner against legal liability arising from an accident
causing any permanent injury or death as well as any property damage.
This insurance policy also pays for towing charges from the place of
accident to the workshop, subject to a maximum of Rs 300 for scooters
and motorcycles and Rs 1,500 for private cars and commercial vehicles.
Also available is a restricted cover for fire and theft but only for
vehicles that are laid up in a garage and not in active use.
All said and done, the India Motor Vehicles Act, 1938 has made it
mandatory for every owner of a vehicle to obtain a motor insurance
policy, either a comprehensive or a third party insurance. As evidence,
a Certificate of Insurance must be carried at all times in the vehicle.
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| Inclusions and exclusions |
A comprehensive car insurance protects you against any loss or damage caused to the vehicle and its insured accessories as a result of natural and man-made calamities like:
While motor insurance may not help save lives, it can help in saving you
a lot of trouble in case -- God forbid -- your vehicle is involved in an
accident. Hence the need for motor insurance.
Natural calamities:
Fire
Explosion
Self-ignition or lightning
Flood
Typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost
Landslide/rockslideFire and shock damage due to earthquakes
Man-made calamities like:
Burglary
Housebreaking or theft
Riots or strikes
Accidents by external means
Malicious acts
Terrorist activity
Damage whilst in transit by road, rail, inland-waterway, lift/elevator, or air
Third party legal liability: A mandatory part of the insurance cover, it
protects the vehicle owner against legal liability arising due to an
accident, causing any permanent injury or death of a person or any
damage caused to property.
Personal accident cover: The motor insurance plan compulsorily provides
personal accident cover for individual owners of a vehicle while
driving. The owner can also opt for personal accident cover for
passengers in the vehicle.
What it excludes:
Typically, the motor insurance plan does not provide for:
Normal wear and tear or general ageing of the vehicle
Mechanical/electrical breakdown
Depreciation, wear and tear of consumables like tubes and tyres
Damages that occur while a person is driving with invalid driving
license
Damage that occur while a person is under the influence of drugs or
liquor
Damage due to a war, civil war, mutiny, or nuclear risk
Claims arising out of contractual liability
Use of vehicle other than what it is meant for. For example, if a
private car is being used as a taxi and gets involved in an accident,
the owner will not be able to claim damages.
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| What is the amount for which I need to insure my vehicle? |
Motor vehicles are insured for a fixed value referred to as insured's declared value (IDV). If the vehicle is stolen or the vehicle is totally damaged and beyond repairs in an accident, the claim amount payable is determined on the basis of the IDV.
The IDV is estimated on the basis of the manufacturer's listed
selling price of the brand and model of the vehicle (and accessories) at
the commencement of the car insurance, after adjusting for depreciation
every year.
Therefore, IDV = Ex-showroom price + sales tax -- (depreciation +
registration + insurance). |
| How is the premium calculated on my vehicle? |
Typically, insurance premium rates are determined by the type of your vehicle, its IDV, the city of registration, the period of coverage, and claims history.
The IDV is determined by the age, brand and model of your vehicle. The IDV determines the premium for your vehicle. The IDV is the sum that is paid to you in the event of theft of the vehicle or the vehicle is totally damaged and beyond repairs in an accident.
Another fact is that premium is calculated only on the cubic capacity of
the vehicle. There is no consideration at all for those advanced
technology and safety features in your vehicle (although some discount
is available for the installation of an anti-theft device).
Another factor is claims history. If you
have a bad claims history, you could be loaded with a higher premium on
renewing the car insurance policy.
On the other hand, if you have been a cautious driver with a claims-free
record, you are eligible for increasing discounts in your second, third,
fourth years, leading up to the maximum discount of 50 per cent on
premium in your fifth policy year. Of course, by the fifth year of
ownership, it makes more sense to take out a third party Only policy as
the reduction in the value of the vehicle and depreciation will make
comprehensive cover too expensive and unnecessary. |
| How long should I cover my vehicle? |
Your vehicle has to be insured at all times. This is required by law.
All car insurance plans are annual policies issued for a period of twelve months. Therefore, you need to know when your insurance renewal is coming up. However, an extension for less than 12 months or a policy for a shorter period can be provided with special approval from a competent authority in the car insurance company.
Comprehensive insurance or third party only policy?
Let's resolve this confusion of choosing between a third party and
comprehensive car insurance policy using the following example:
Mr. X, due to the bad traffic on the city roads, employs a driver. One
day, after dropping Mr. X at the office, the driver collides with
another car on the highway and dies on the spot.
As an employer, Mr. X is liable to compensate the driver's demise as he
was in the vehicle in the course of his job. Now, as the Motor Vehicles
Act has made it mandatory to insure liabilities under the Workmen's
Compensation Act, the driver's son files an application to the Labour
Commissioner and is awarded Rs 1,50,000. Now if Mr. X has had a third
party policy then he can approach the insurance company, who in turn
compensates the claim.
The liability for compensation as per the Workmen's Compensation Act
depends on the wages of the employee and her/his age, and largely
represents the loss of earnings. Other losses such as mental pain and
agony for the family, future expenses of dependents, and loss of
prospective earnings are not accommodated.
The driver's son now approaches the Motor Accident Claims Tribunal,
demanding a compensation of Rs 1,00,000 towards these losses. Let us
assume that the Tribunal awards him only Rs 50,000.
Now that Mr. X's third party policy does not cover the second award as
per the Motor Accidents Claims Tribunal he will have to pay the Tribunal
award of Rs 50,000 from his own pocket. If Mr. X had purchased the
comprehensive policy with additional personal accident cover for
passengers and drivers, the insurance company would have paid the
additional compensation as well.
Moral of the story: It is always advisable to purchase the
comprehensive policy covering additional liabilities. |
| Can the insurance premium on my vehicle be reduced? |
A large part of your insurance premium cost is based on the IDV of your vehicle.
If you maintain a claims-free record, you accumulate a bonus, which
translates into discounts on policy renewal. Insurers reward
policyholders for not making claims by providing a discount on the
premium.
Moreover, you could avail of discounts if you are a member of a
recognized automobile association. A discount of up to Rs 500 could be
availed if you have installed an anti-theft device in your car that is
approved by the Automotive Research Association of India.
What if I forget to renew my auto insurance on time?
A car insurance policy has to be renewed
before the expiry of the ongoing term of insurance. Delay in renewing a
policy and thereby driving a vehicle without valid motor insurance is
illegal and there are substantial penalties.
Here are some scenarios where you will lose out:
In case the uninsured vehicle has an accident, the insurance company
is not liable and you would have to bear the liabilities alone, if any
If the policy is not renewed within 90 days of the expiry date of
the previous policy, the no claim bonus cannot be claimed
If the policy expires and is not renewed on time, the insurance
company will insist on a physical inspection of the vehicle before
granting renewal
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| What is no claim bonus? |
Let us assume you have made no claim on your car insurance policy this year. As a reward, the insurance company grants you a discount in premium on your policy renewal. This discount is called a no claim bonus.
This bonus is offered only if the motor insurance policy is renewed
within 90 days of expiry of the previous policy.
If you have made no claim in the first year, you get a bonus of 20 per
cent; for two consecutive years, the bonus is 25 per cent; for three
consecutive years, it's 35 per cent; for four consecutive years, 45 per
cent, and for five consecutive years, the bonus is 50 per cent. The no
claim bonus cannot exceed a maximum of 50 per cent.
An important fact that you must remember is that if you make an
insurance claim, the no claim bonus reduces to nil on renewal. For
instance, let's say that you have had three consecutive claims-free
years and you availed a 35 per cent no claim bonus. Now, in the fourth
year, you have an accident and you make a claim. When you renew your
policy in the fifth year, you do not get any discount; you have to pay
the full premium.
Now that you know the various advantages that a motor vehicle owner can
avail of isn't it time you cover your vehicle to the maximum extent
possible? |
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