Important terms in your motor insurance policy that you should know about

For most car owners, their vehicle holds a special place in their hearts as it is a consequential part of their everyday life. Right from quick outings to long road trips – your car accompanies you everywhere you go. Hence, it’s only fair that you should also know how to take good care of it and protect it from any unforeseen event like an accident or theft, by going for a comprehensive motor insurance policy.

The NCRB data suggests that Indian roads witnessed around 3.5 lakh accidents in 2020. Moreover, around 2.5 lakh vehicles get stolen every year, of which only around 25 per cent are ever recovered. This makes vehicle insurance an absolute necessity. However, before you buy a motor insurance for your vehicle, you must know all about the important terms associated with it. Here are some lesser-known terms in your policy that you should know about.

IDV: Insured Declared Value, or IDV, of a motor vehicle, is basically the maximum amount of money that the insurance company is liable to pay in case of a total loss of the vehicle, or if the vehicle is stolen. The insurance premium that one needs to pay is directly proportional to the IDV. So while one can get a lower quote on the premium by setting a lower IDV, one should avoid this mistake. IDV should be carefully calculated while purchasing the policy and should be close to the market value of the vehicle so you don’t face any issue while filing a claim. Here, you need to remember that the vehicle’s current IDV should be a maximum of 90 per cent of the last year’s IDV as per regulations. Taking a higher IDV than that would lead to extra spending. However, in case of a total loss claim, the payout would be only at 90 per cent of last year’s IDV. Hence, it is best to keep the IDV at the regulated amount and avoid spending extra on premium by choosing an IDV higher than last year.

NCB: No claim bonus, or NCB, is a discount on the insurance premium that you get if you ride carefully during the policy year and do not have to make an insurance claim. Moreover, the NCB gets accumulated year over year and can go even up to 50 per cent of the entire year’s premium, if you do not make a claim for consecutive years. Essentially, the more you ride without an accident, and without making an insurance claim, the higher is the no claim bonus that you get. It is also noteworthy that NCB is not vehicle-specific. So even if you sell your vehicle after using it for, say, five years without making any insurance claim, you can get up to 50 per cent NCB discount on the insurance policy of your new vehicle.

Third-party vs Comprehensive cover: When you buy an insurance policy for your motor vehicle, you have the option to go for only the mandatory third-party cover, or a comprehensive policy. The difference is that a third-party policy only covers the cost of the damages that a third party may incur which has been involved in an accident with your vehicle. It does not cover the risk of damage to the insured’s own vehicle, nor does it protect the vehicle against theft. A comprehensive policy, on the other hand, provides full protection against damages to all parties involved in an accident including your own vehicle, the driver and passenger, as well as the third-party vehicle and its driver. Moreover, it also covers the vehicle against theft and damage due to natural and man-made disasters. You need to remember that it is mandatory by law for new car owners to have a one-year comprehensive+ 3-year third-party insurance policy at the time of purchasing the car. However, for the second and third years, the owner is only required to purchase a standalone own damage policy.

Deductible: A deductible is that part of an insurance claim that has to be paid out-of-pocket by the policyholder before the policy kicks in to pay the rest. There is a compulsory deductible fixed by the insurer which has to be mandatorily paid by the policyholder while making a claim. On the other hand, there is also an option to go for a voluntary deductible over and above the compulsory one. A policyholder can opt for this to reduce the premium of the policy. Higher the level of voluntary deductible lower would be the annual premium of the policy.

Riders: Riders, also called add-ons, are additional covers that you can opt for to get extra protection for your vehicle. These riders cost extra, but can be used to customise the motor insurance policy to meet your specific needs. There are various riders available to choose from. One can go for a “Zero Depreciation” rider, which protects your vehicle’s value — with respect to its insurance coverage — against age and obsolescence. There are also riders available to protect the engine, gearbox, and even to cover the key and lock replacement, 24×7 roadside assistance, etc., which are not covered in a standard policy.

By knowing all these terms that you would come across in policy documents and brochures, you would be able to make an informed decision while choosing a motor insurance policy. After all, an aware consumer is an empowered consumer.

The author is Head-Motor Insurance Renewals at Views expressed are that of the author.

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