Seven basic things about car insurance

Be it life insurance, medi-claim or car insurance policies, buying the plans and then keeping them in cold storage – without bothering to read the policies in detail – is a pretty common habit among most of us. It is only when we have to renew the cover, or have to file a claim that most of us wake up from our slumber, and read the various terms and clauses mentioned in our insurance policies.

Here, then, are seven basic things relating to car insurance that you must know:

Car–and not driver–insured

In India (unlike the USA), car insurance policies define the vehicle–and not the driver/owner–as the “insured”. So, God forbid, if you or anyone driving your car meets with a fatal accident, then don’t expect the insurance company to pay compensation to your or his family. Also read: 6 key top-up covers for car insurance

Types of car insurance

Third party policy: If your car causes physical harm (death or injury) to a third person or inflicts damage on his property, then this coverage would ensure that the insurance company–and not you (the owner/driver)–bears the financial liability. All car buyers simply have to purchase third party insurance–it’s a legal obligation, and not an option!

Comprehensive/package policy: If you want cover for damages to your car in case of an accident, then go in for a comprehensive policy. Also known as package policy, this cover includes damages to a third party.

Key car insurance terms

Depreciation: This is the decrease in the value of your car over a period of time, due to wear and tear during the normal course of usage. If you have replaced car parts and then lodged a claim for reimbursement of those expenses, then the insurer will look at the depreciation of your vehicle before deciding on the claim.

Insured’s Declared Value (IDV):  The Insured’s Declared Value of a car is the amount the insurance company will pay you if your vehicle is damaged beyond repair or stolen. This is similar to the “Sum Assured” that a life insurer will pay your family members in case of your unfortunate death.

Now, if the total cost of repairing the car following an accident comes out to be more than 75% of the IDV, then the insurer will pay you the entire IDV. Also read: 5 tips to reduce car insurance premium

Deductible: We all hate that ‘Tax Deducted at Source (TDS)’ component in our monthly salary statements, don’t we? Something similar awaits you if and when you file a claim for damage to your car (post-accident). The insurer will subtract a certain amount–known as “deductible” (or “excess”)–from your claim figure before calculating how much to pay you.

No claim bonus (NCB):  If you have a comprehensive car insurance plan, and have made no claim during a policy year, then the insurer–while renewing the policy–will give you a discount on the portion of the total premium that covers damages to your vehicle. Known as “No claim bonus”, this discount is an incentive for you to be a good driver, and to steer clear of accidents. Also read: Third party premium on small cars almost doubles

It’s important to remember that NCB belongs to you–and not the specific car you currently own. So when you sell or exchange a vehicle, you can transfer any accumulated No claim bonus to your new insurance policy on a new car, and enjoy lower premiums. Also read: 10 Points to remember while choosing car insurance