Tips to buy Motor Insurance

Reema was extremely excited about the purchase of her first car. Thanks to the car scheme offered by her employer, Reema was now looking at buying her own car within 4 years of working. Being a first-time car buyer, Reema spent a considerable amount of time researching options within her budget. So when she eventually zeroed in on the model and the large number of accessories she wanted in her vehicle she was left with no patience to research car insurance options. Adding to her reluctance were several tales of complicated insurance products and lot of fine print. She therefore without any deliberation picked a motor insurance policy being offered at the dealer showroom.

Many car buyers or car insurance repeat customers show immense reluctance in researching insurance offerings. While choosing to skip research on motor insurance car owners must know that:

1) Motor insurance is extremely easy to research given the huge array of online tools available.

2) Skipping insurance research and saving a few minutes but may result in selection of a wrong product which may result in a huge hole in the owner's pocket at the time of a claim

In reality motor insurance purchase (especially retail off the counter offerings) is quite simple to research and easy to understand. Mr. Sanjay Kumar, Head – Motor Underwriting, Bharti AXA GI shares few easy tips for the purchase of motor insurance.

Research: While it’s fine to consider options put forward by vehicle manufacturers, agents and company sales reps, it’s important that a little time is spent on research. Most insurance companies provide details online and also let you take a quote on a selected policy based on details you share. Further, it’s quite easy to research a company history with claims based on customer reviews and IRDA published data. Also do check the cashless garage network an insurance firm offers.

A good bargain does not necessarily mean the lowest premium option: While it is imperative to compare prices across offerings in the market. Please do not confuse affordable prices for a good bargain.  Especially if you happen to own a sedan with expensive spares or live in an area that floods regularly you must customise your offering to protect your vehicle against imminent risks you are likely to face. A small hike in premium will save you thousands or even lakhs at time of a claim

Cover for additional accessories:  If you have opted for additional electronic fittings like Music system, DVD etc., you must ensure that these accessories are separately covered for their full value 

Add-on Covers – As mentioned earlier it is possible to customise your offering in accordance with probable risks you are likely to face. Add-on covers allow you to pick and choose covers for specific risks. Given are some common add-on covers each motor insurance buyer should be aware of.  

• Depreciation Cover –Typically under any comprehensive policy in case of a claim, the insured receives an amount that is subject to depreciation. He/she therefore, receives an amount lower than the actual repair expense. With Depreciation cover the insured receives the depreciation amount deducted on the value of the parts replaced for up to 2 admissible claims.

• Invoice Price Cover –It covers the difference of amount between the IDV of the vehicle (as mentioned in the policy) and the invoice price including road tax and first-time registration or the current replacement of the vehicle if the same make model is available, whichever is less, in event of total loss. This add-on cover is applicable for a period of two years (from the year of manufacture of your vehicle).

• Roadside Assistance – This cover provides assistance to the customers at the time of breakdown, towing the vehicle to the nearest garage for repairs, etc...

• Hydrostatic Cover or Engine Protector – Certain locations receive very high rainfall or may face frequent flooding. Vehicles in these areas are therefore prone to engine damage on account of water entering the engine. This cover provides protection against this risk by paying for losses arising out of repair or replacement of engine parts of your vehicle due to ingression of water in the engine.

• Consumables Cover – This cover pays for expenses incurred towards “those items or substances of specific use which at the time of loss are either totally consumed or rendered unfit for further consumption” arising out of damage to the vehicle insured and/or to its accessories caused by any peril as covered under the Policy.  

• Outstanding Loan Cover – A large number of vehicles are purchased out of ‘finance’ arrangements through banks/NBFCs.  In the event of unfortunate death of the customer, the insurer will compensate to the extent of the loan outstanding in the books of financiers.

Standard Policies come with certain ‘deductible’ to be borne by the customer at the time of accidents – the ‘deductibles’ vary based on cubic capacity of the vehicle – Rs 500 for cars with cubic capacity up to 1500cc and Rs 1,000 for vehicles above 1500 cc.  The policy provides certain discounts for the customers opting higher ‘deductible’ than provided in the policy – some intermediaries choose higher deductibles to bring down the premium and customers are not kept informed in most situations – it is important for the customer to know about this at the time of purchasing a motor insurance policy.

No Claim Bonus (NCB) – For every ‘accident-free’ year the insurance company incentives you by offering a renewal discount known as NCB. The maximum NCB entitlement is 50 per cent of the Own Damage (OD) Premium. In case you wish to switch your current insurance company with any other insurer – please know that NCB follows the owner and not the vehicle. So when you move to a new insurer please provide a “Renewal Notice” to the new insurer so that you get the NCB benefits from the new insurer. Also double check NCB information you share with the new insurer. Any discrepancy could cause repudiation of your OD claim! NCB is given for every accident-free year, but the renewal must be in effect within 90 days before expiry of the previous policy. 

Discounts: Apart from NCB there are other discounts an insurance company offers. Some common discounts are:

• Installation of Anti-theft devices allows discounts on Own Damage Section 

• A Membership in Automobile Association of India offers a discount of 5% on own damage premium subject to maximum of Rs 200 for cars.

• Concessions for specially designed vehicles for handicapped persons – discount up to 50% of own damage premium allowed in respect of both privately owned vehicles and vehicles owned and used by institutions engaged exclusively in the services of the blind, handicapped and mentally challenged persons.  The vehicles should be suitably endorsed in RC Book to avail the discount.

• Use confined to own premises - Where a vehicle is to be used in the insured's own premises to which the public have no general right of access and provided the vehicle is not licensed by the authorities concerned for general road use, customers enjoy a discount of 33.33 per cent.

Motor Insurance in case of purchase of 2nd hand vehicle – Motor Vehicles’ Act requires the buyer of the vehicle to arrange transfer of ownership in Registration Certificate within 14 days from the date of purchase of the vehicle and this need to be informed to the insurer as well.  If the customer has not managed to transfer within the timeline, insurers are free to deny liability for accidents to the customer.

Insured’s Declared Value (IDV) – At the time of motor insurance (when it’s not a new vehicle) a customer is required to declare the worth of the vehicle – Insured’s Declared Value (IDV).  The insured must make sure that IDV of the vehicle matches current market value of the vehicle – insurer’s liability for Own Damage Section is limited to IDV and no more – if IDV is fixed at a lower side, customers would lose substantially in the event of total loss or theft losses.

Insurance policy has a validity of 365 days – all motor policies expire at midnight of the 365th day.  For example, if you have taken cover from 1st Jan 2015, the policy expires at midnight of 31st Dec 2015.  Then you must renew his policy before 31st Dec to avoid a break in insurance.  

Motor Insurance is divided in two parts – Own Damage Section to Cover the Vehicle and Third Party Section to provide Legal Liability towards Third Parties.  The customer has the option to buy only Third party Insurance cover or can buy both Own Damage and Third Party Sections together, known as Comprehensive Insurance or Package Policy.

Own Damage Section covers damages to a vehicle due to:

i. fire explosion self-ignition or lightning 

ii. burglary housebreaking or theft 

iii. riot and strike

iv. earthquake (fire and shock damage)

v. flood, typhoon,  hurricane, storm, tempest, inundation, cyclone, hailstorm, frost

vi. accidental external means

vii. malicious act

viii. terrorist activity

ix. transit by  road  rail  inland-waterway  lift  elevator  or  air

x. landslide or rockslide

Any vehicle plying on any public road in India must have a valid Third Party Insurance Policy. 

Third party Section covers legal liabilities arising out of:

• Injuries to third Parties or Death whilst on any public road – the liability is unlimited

• Property owned by Third Parties – the liability is up to Rs 7.50 lakh.

In a nutshell, the selection of a suitable Motor insurance is not a taxing activity. In fact, with a little help it is quite easy and quick. So as a vehicle lover do put in a few extra minutes to ensure that your car or bike has the best protection within your budget.  Happy motoring! 

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