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Business News/ Opinion / Online-views/  Buying a car? Three insurance queries to ask
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Buying a car? Three insurance queries to ask

Knowing what to do in case of making a claim will save you from unnecessary delay

Jayachandran/MintPremium
Jayachandran/Mint

Before you can drive out your new car, you find yourself signing up for a car insurance policy. Most car companies that have insurance tie-ups will either bundle it with the cost of the car or will throw the first year cover in for free. The excitement of driving home a new car wipes out mundane thoughts about the policy and what it does. The document is hunted for and pulled out the minute you need a claim. While not taking away from the high of the car purchase, answers to three questions will keep you ahead while making a claim.

What does it cover

A third-party liability cover is the basic form of motor insurance or car insurance. This is a mandatory cover that you need before you can take your car out of the showroom. The policy covers you in case the insured vehicle causes damage to life or property of a third party. In addition to this, a comprehensive car insurance policy also throws in other covers such as own damage (OD) that insures your vehicle against theft or damage, and passenger cover that insures the lives of the passengers.

The structure of a comprehensive policy usually stays the same across insurers but what differentiates one policy from another are the add-on benefits. These add-on offerings vary but a few need mention. For instance, the depreciation cover makes a lot of sense. Insurers don’t pay the cost for replacing certain parts of your vehicle but only the depreciated value. This cover will pay the remainder to replace these parts.

Insurers apply different depreciation rates to different body parts. For instance, on damage of a plastic part, insurer’s liability is restricted to only 50% of the cost whereas in metal parts, the insurers liability reduces by 5% every year up to 50%. In fact according to a draft exposure, depreciation of 50% will also apply to painting of the car. This depreciation will be applicable on material cost and not on labour cost. Another cover that covers depreciation is called return to invoice. In case of complete damage or theft of the car, this cover pays you the amount a new car would cost instead of just paying the depreciated value of the car; in insurance parlance it is called the insured declared value (IDV). But remember these add-on benefits come with fine print. For instance, they are not available to you for more than five years. “The older the car, the higher is the depreciation. This will translate into a higher replacement cost. For this reason, most of these policies come for three years and not more than five years in some cases," says K.N. Murali, senior vice-president, head-motor, Bharti AXA General Insurance Co. Ltd. Other than that they are usually available for a specific number of claims in a year. You need to be aware of the fine print. “Usually the premium ranges from 10% to 30% of the OD premium," says Madhukar Sinha, national head-personal lines, Tata AIG General Insurance Co. Ltd.

Other covers that protect your no claim bonus or offer you a daily allowance or a substitute vehicle for the time your car is being repaired can be looked at. “One should also look at engine protection cover. It covers subsequent and consequential damage to the car engine. An accident or named peril such as flood is covered in the basic policy, but any consequential loss is not. For instance, in case an accident causes the engine oil to leak, the engine may freeze and this will not be covered under the basic policy, but the add-on cover will cover this damage," says Sinha.

What claims are paid

The first thing to understand about a car policy is that it does not pay the entire claim amount. In case of own damage cover, the policy comes with a deductible. A deductible is that amount of the claim that needs to be borne by the the person who buys the cover. For instance, for a 1,500 cc vehicle, the deductible is 1,000. That means any claim worth 1,000 will not be entertained. In case of claim above that you will still need to pay out the first 1,000.

After this, the policy will only pay the depreciated value of certain body parts. You will need to bear the extra cost for replacing them. An add-on depreciation cover will take care of this cost.

Additionally your car insurance policy will also not pay for any improvement or for consumables. “While getting it repaired if you need to improve or beautify, the insurance company will not pay. Also consumables such as engine oil, brake oil or gear oil is also not paid for by the insurer," adds Murali.

Also keep in mind that the insurer will not pay for any negligence on your part. “In case of a third party, an insurer has three defences: if the driver doesn’t have a valid driving licence, if he is driving under the influence of alcohol or if the car does not have a fitness certificate," says Murali. In case of commercial vehicle, the fitness certificate is needed once in two years whereas in case of private vehicle it is needed once in 15 years. These reasons can also be used to refuse OD cover or passenger cover benefits.

How to claim

Under an own damage policy, there are two kinds of claims that you can make: in case of damage to your car and in case of theft. In the first case the most important step is to inform your insurer as soon as possible. A delay may unnecessarily cause the insurer to investigate your case further. Also it’s good to take pictures to show the surveyor. After you take your car to a networked garage for cashless settlement, a surveyor will evaluate the cost of repairing the vehicle and settle the bill directly. In case the garage does not have cashless facility, you will need to pay the bill yourself and then claim it from the insurance company.

In case of a theft, claims are settled usually after many months and there are many more hoops that you need to jump through. First, you need to inform the police station in your area and register a first information report (FIR). The cops will take about 90 days to hunt your car down, failing which they will issue a “not traceable" report. Give that report to your insurer along with other documents such as your policy and registration certificate. After submitting the report the insurance company will also make some enquiries. The insurer will then ask you to fill up transfer forms that will effect a transfer of the vehicle in their name and you will need to hand over the car keys to them. Again you could lose another month or two here in getting your claim.

Other claims: In case of a third-party claim, the first step is to bring your insurer into the loop as soon as possible. Your insurer will defend you in the court, failing which he will settle damages. You can help the insurer by taking photographs of the accident and by taking down the phone number of any witness. In case of a passenger cover there are two kinds of covers that are available. “A personal accident cover insures all passengers of the vehicle. The number of passengers here is capped at the vehicle capacity. In case of a paid driver, the insured can take the workmen’s compensation cover," says Rahul Aggarwal, director, Optima Insurance Brokers Pvt. Ltd. The benefit under a personal accident policy as part of the car insurance policy is capped at 2 lakh.

The insurer will need additional documents such as an FIR, post-mortem report, or medico-legal report of the hospital acknowledging the death of the insured to settle the claim.

So open up that policy document and get the right cover when your policy comes up for renewal.

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Published: 22 Oct 2012, 07:32 PM IST
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