Demystifying motor insurance

All of us having motor vehicles have to go through the yearly ritual of buying insurance on our car; Motor insurance as the market calls it. This article tries to demystify the jargon and processes involved in general insurance.

The basic jargon:

Insured: Owner of the private car
Insurer: The insurance company

Under the provision of motor vehicles act all vehicles running in the public should have car insurance policy. The car insurance policy can be either

• Third party or

• Comprehensive insurance policy.

Third party car insurance policy covers only the inter-alia accountability of the vehicle owner for loss or damage to life or property of the third parties.

Whereas comprehensive car insurance policy covers in addition to third party accountability, loss or damage to the vehicle itself by way of accident, theft, etc and specified dangers

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Motor insurance policy covers

Section 1. Loss of or damage to the vehicle insured

The company will reimburse the insured against the loss or damage to the vehicle insured for the following

1. by fire, explosion, self ignition or lightning

2. by burglary, housebreaking or theft

3. by riot & strike

4. by earthquake

5. by flood, typhoon, hurricane, storm, tempest, inundation, cyclone

6. by accidental external means

7. by malicious act

8. by terrorist activity

9. whilst in transit by road, rail, inland-waterway, lift, elevator or air

10. by land slide, rockslide

Cost of protection to the nearest car repair service: Rs 1500

Vehicle valuation

The car is neither to be insured for reinstatement value nor for depreciated value. It is to be insured for second-hand value in the local market for a similar type of car for a similar model. In the event of loss, the liability of insurance company is the maximum compared to the market value or the amount of insurance whichever is less.

Factors determining premium of a car

• Cubic capacity

• Year of car

• Geographical location

• Value of car proposed

• Various extensions opted for

What does company pay in case of claim for comprehensive cover?

In case of an accident, the insurance company pays for cost of damaged parts, which are to be replaced and the labor cost to repair the vehicle.

Will I be eligible for complete reimbursement?

No, it is all subject to a deduction or depreciation at the rates mentioned below in respect of parts replaced

1	For all rubber/nylon/plastic parts	50%
2	For fiber glass components	30%
3	For all parts made of glass	Nil

For all other parts depreciation will be as below

Age of the vehicle	% of Depreciation
Below 6 months	Nil
6 - 12 months	5%
1 - 2 Years	10%
2 - 3 Years	15%
3 - 4 Years	25%
4 - 5 Years	35%
5 - 10 Years	40%
Exceeding 10 Years	50%

The insurance company will not be liable to make any payment in respect of

• Consequential loss, depreciation, wear and tear, mechanical or electrical breakdown, failures or breakages

• Damage to tyre and tubes unless the vehicle is damaged at the same time, in which case the liability of the company shall be limited to 50% of the cost of replacement

• Any accidental loss or damage suffered whist the insured or any person driving the vehicle under the influence of intoxicating liquor or drugs

Section II - Liability to third parties

1.Death of or bodily injury to any person including occupants carried in the vehicle (provided the occupants are not carried for hire or reward)

2.Damage to the property other than property belonging to the insured

Section III - Personal accident cover for owner diver

Due to bodily injury/death sustained by the owner-driver of the vehicle by violent accidental external and visible means which independent of any other cause shall within six calendar months of such injury results in

Sl. No	Nature of injury	Scale of Compensation
1	Death	100%
2	Loss of two limbs or sight of two eyes or one limb & sight of one eye	100%
3	Loss of one limb or sight of one eye	50%
4	Permanent total disablement from injuries other than named above	100%

Apart from the above covers the private car insurance policy can include the following endorsements at discounts and payment of additional premium

• Discount for membership of recognised automobile associations

• Installation of anti-theft device

• Personal accident cover to the insured or any named person other than paid driver or cleaner

• Personal accident to unnamed passenger other than insured and the paid driver and cleaner

• Personal accident cover to paid drivers

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Deductibles

It means the minimum amount which cannot be claimed

1. Compulsory deductible: Rs 500 for each and every claim.

2. Voluntary deductible: The client whilst taking a policy can decide on voluntary deductibles thru which the insured may avail a discount on the premium.

3. Legal liability to employees of the insured other than paid driver who may be traveling or driving in the employers car.

The sample insurance policy detailed above is the traditional insurance policy still operated in India. Few insurance companies like Cholamandalam, TATA AIG have launched new motor insurance policies which cover even depreciation, loss of driving license, daily allowance whilst at the garage. Keep reading this column to know more.

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