Insurance rarely ends up being as simple as you imagine. Here’s our simple guide that covers everything you must know.
Published On Jun 21, 2017 06:00:00 AM
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In order for a car to be road legal, it is mandatory that it is covered by a valid insurance policy. Now, most vehicle owners expect their insurance policy will cover them against all damages, and this is usually because they do not read the fine print. However, this is only partly true. In any eventuality, just because your vehicle is insured, doesn't mean you have a complete financial cushion. It's important to find out which damages are covered by your policy and which aren't. Also, it's possible to save money when it's time to renew you car insurance, once you are acquainted with the details. So, to make things easier, we have answered some frequently asked questions.
What is car insurance and what does it cover?
Car insurance provides you with financial cover after you have had an accident, to compensate for damage to the car, its occupants or any third party involved.
It is a contract between the insurance company and you – the vehicle owner, that states that the company will pay for the damages, as long as you pay an annual fee, called a premium. However, it is vital to read the terms and conditions because a policy won't cover everything. For instance, some policies will insure your car against damage caused by natural calamities like floods, earthquakes, while others will take care of man-made calamities like traffic collisions, vandalism and theft. The insurance policy generally lasts for a year and you aren't obligated to renew it with the same company each time; if you find a policy that suits your needs better, you should switch at the time of renewal.
There are two types of car insurance policies that you can buy – third-party and comprehensive. Third-party insurance will only cover damage claims made by any external party that has been affected in an accident. For example, if your car collides with another car, the insurance company will pay only for the damage to the other person's car. In comparison, a comprehensive policy will cover the damage claims made by you as well as by the other person.
The policies offer additional add-ons. Which ones are really worth going for?
Nowadays, all car insurance companies also offer 'add-on modules' that increase the protective cover compared to the basic policy. For example, if you add Road Side Assistance to your policy, the insurance company will also pay for a towing vehicle to come and transfer your damaged vehicle to the nearest workshop. Of course, the annual premium you pay goes up with the add-on covers you opt for, but some essential ones can save you a decent sum of money in a worst-case scenario.
Engine damage: Contrary to what some might think, a basic insurance policy does not cover your vehicle against any engine or electrical damage. An engine damaged by water ingestion, for instance, is not covered under normal insurance. Also, rain water can play havoc with the car's electronics and sensors. Going for an engine and electrical damage add-on cover can protect you from expensive bills. But do ask about the types of damage that will be covered and about the cost of labour too.
Zero depreciation: This add-on ensures that you receive a full claim on parts that need to be replaced, without their value being reduced under the pretext of depreciation. So the insurance company has to pay you the current market value of the affected parts.
Road side assistance: We are used to commuting safely within the city, but have you wondered what would happen if your vehicle broke down in a remote village during a weekend getaway? Well you can get yourself covered for eventualities like these. With some policies, in case of a major accident, you can avail of a taxi fare to the nearest city and, if need be, even an overnight stay in a hotel.
Where can i buy car insurance?
You can buy a new insurance policy for your car from either the authorised workshop or independent insurance agents or even online. The advantage of buying it from the workshop is that claiming it should be easier, although they will likely charge a higher premium. Most workshops are on good terms with the insurance company they have a tie-up with and most claims get cleared as early as possible. Apart from consulting insurance agents directly, you can also visit the websites of each insurance company and find out the premium that each one quotes. And, you can even visit websites like policybazaar.com that will compare policies from different companies and sort out the best quote for you. But make sure to equate what you get with what you are paying.
What is a no claim bonus?
If you don't make an insurance claim (i.e. ask the insurance company to pay for any damages) during the year that you're insured, then you get what is called a No Claim Bonus (NCB). The best part is the NCB is attached to the car and not the insurance company, so you can carry it over even if you decide to renew your policy with another company. Even when buying a used car, the previous owner's NCB will get transferred to you.
The good bit is that the bonus adds up with each year of claim-free driving. For example, if no claims were made in the first year then you are eligible to get around 20 percent off your next basic premium. If no claims are made for the next four consecutive years, the discount figure can go up to 45 percent. Another way of cutting down your premium is by opting for voluntary excess. While buying a new policy, you can opt to bear some amount of the cost of repairs in exchange for a lower premium. But bear in mind, choosing this option will be counterproductive in the case of a big accident; if the repair costs end up being astronomical, you'll have to pay more.
How is the insurance premium calculated?
The insurance premium is calculated depending on the IDV or Insurer Declared Value, which is the current market value of the car. The IDV gets recalculated each time you renew the policy, so the premium gets adjusted against the depreciation of the vehicle's value. Usually, the IDV drops by around 10 percent annually. You can choose to reduce this further and thereby lower the premium amount, but this can be counterproductive, as you will get a lower value for the car in the event of a total loss or write-off. If your car is fitted with an ARAI-approved anti-theft device, then the insurance company will lower your premium, as the car will be safer from theft as a result of it.
How do I make an insurance claim?
In the unfortunate event of an accident, you should first click pictures of the damage at that location and then file an FIR (First Information Report) at the nearest police station. Then, contact your insurance company. You can get the car towed to a workshop of your choice and the insurance company will send an executive to assess the extent of the damage. The repair work should begin only after the executive has assessed your car and given a go-ahead with an estimation of the costs involved. You will also need to fill up a form that states details about the vehicle, how the accident happened, details of the person driving at that time and the FIR number.
In certain cases, it's better to not file a claim. For example, if another vehicle merely scrapes you car's bumper in traffic, then the cost of re-painting it won't be too expensive, unlike mechanical damage, where parts need to be replaced. So if the repair cost is reasonable, then don't claim it, because by doing so you will be able to retain the No Claim Bonus when you renew the policy.
What if the insurance company declares my car as a write-off?
In the case that your car is involved in a major accident and suffers severe damage, then the insurance company may choose to declare the vehicle as a total loss or a write-off, especially if the cost of repairing is more than 75 percent of the Initial Declared Value. This figure will differ from one insurance company to another. However, to claim for a total loss, you will have to transfer the ownership of the car to the insurance company. You will need to submit all documents related to the vehicle like the original registration papers, duplicate keys and an NOC from the RTO. After the insurance company completes all the formalities, you can expect the reimbursement to arrive in a few weeks.
When does the policy need to be renewed?
Typically, a car insurance policy is valid for a year from the day of issue. The company with which you have your existing policy will start reminding you to renew it a few months before it expires. Even if you apply and get new insurance before the current one expires, the new policy will come into effect only after the expiry date of the existing one. The insurance policy takes a few weeks to process and a cover note is generally issued as proof that you have applied for a new one, and is valid for two months. But, do not forget to get a copy of the actual policy as soon as possible. In case you fail to renew the policy before it expires, you will end up losing your No Claim Bonus, if you were eligible for one.
While renewing car insurance, it is possible to save some money if you are smart. Always renew the vehicle's insurance policy before the current one expires. Remember to first ask about the status of your No Claim Bonus, ask if there are free add-ons and how much voluntary excess is possible. Doing this will immediately tell the seller you are well informed. After that, remember to read the terms and conditions carefully. Going for a comprehensive insurance policy with add-on covers is your best bet, if you can afford it.
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