Motor Insurance

The cost of medical treatments in India has increased multifold. Moreover, increasing traffic on roads and poor execution of traffic rules have also spiked cases of accidents and accidental deaths in India.

 Also, hit and run cases are rising uncontrollably that leave poor victims helpless and in deep financial crisis.

Such multiple issues have created a huge market for MOTOR INSURANCE PLANS in India that provide compensation not only to its policyholders for getting their damaged car repaired but also to cover 3^rd party individuals who become victims of road accidents leading to accidental death or injuries due to negligence and rash driving of drivers.

It should be noted that as per the Motor Vehicle Act of 1988, every car owner in India has to compulsorily buy a 3^rd party car insurance.

 

 

WHAT IS A MOTOR INSURANCE POLICY?

A MOTOR INSURANCE PLAN is a general insurance product where the insurance company enters into a contract with the policyholder and agrees to compensate for any financial loss that the policyholder incurs in getting the car repaired in the event of an accident.

It also covers medical expenses of 3^rd party car accident victims including death where a specified amount is paid to the nominee of the car accident victim for which the policyholder needs to pay premiums every year.

 

 

TYPES OF MOTOR INSURANCE POLICY

The following are the different types of MOTOR INSURANCE POLICIES.

1. Third party insurance – A third party insurance covers victims of car accidents only. It compensates them for any kind of injuries or death caused to them due to an accident by the car owner.

The premium charged for 3^rd party covers are comparatively lower as compared to comprehensive cover.

 

2. Comprehensive insurance – It is most commonly known as 1^st party insurance that not only insures 3^rd party road accident victims but also covers damages caused to the policyholder’s own car due to an accident.

It compensates them for a certain portion of expenses they incur in getting their car repaired. The premium charged for availing 1^st party insurance is comparatively higher than 3^rd party insurance since it offers wider coverage along with 3^rd party coverage.

 

 

WHAT KIND OF EXPENSES DOES A MOTOR INSURANCE POLICY COVER?

The following is the list of some of the most common expenses that MOTOR INSURANCE POLICIES cover.

1. Car damages – It covers damages caused to the car due to accidents, riots or any natural disaster. The maximum compensation that the policyholder is entitled to will be based on the amount of cover opted and actual cost in getting the car repaired.

 

2. Loss or theft – It also covers the loss if the car gets robbed or stolen. For this, the insurance company evaluates the value of the car based on the information available and applying depreciation.

 

3. Third party liability – It covers any third party car accident victims and compensates them for the financial loss that they suffer while getting themselves treated for injuries. It also covers them for accidental death.

 

 

IMPORTANT POINTS TO NOTE ABOUT THE MOTOR INSURANCE POLICY

The following are some of the important features of the MOTOR INSURANCE POLICY that all subscribers are expected to know.

1. Grace period for premium payments – In case of delay in renewing the policy, every insurance company usually allows a grace period of 30 days in case of yearly premium payment mode and 15 days in case of other payment modes.

 

2. Freelook period – Free look period simply means that the policyholder has all the liberty and rights to refer the original policy document and cancel the policy without any cancellation charges during that period.

Every policyholder is allowed a free look period of 14 days from the date of receipt of the original policy document to review the terms and conditions of the policy and to cancel the policy if it deviates from what was committed.

 

3. Mandatory insurance – It should be noted that “The Motor Vehicles Act”, 1988 has made 3^rd party liability insurance mandatory for all car owners.

If someone is found driving the car without having a valid insurance policy in place then they are sure to face fines and penalties from the RTO authorities.

 

4. Not 100% expenses are reimbursed – Car is a physical asset and its body and spare parts are subject to depreciation. While honouring claims, an insurance company checks the original value of the asset, then applies depreciation to arrive at its current market value.

Due to this, the claim amount receivable by the policyholder reduces to the extent of depreciation adjusted.

Hence, a policyholder must ask his insurance provider for a “zero depreciation cover” which is available with most insurance companies as “add on”. This attracts a higher premium but it is very useful when the claim arises.

Also, many times, some of the car’s body parts made of plastic and soft fiber are very delicate and involve a high cost of repair which most insurance companies exclude from the overall cost of repair.

 

5. Zero depreciation cover – This is one of the add on benefits that insurance companies offer at an extra premium. This add on benefit negates the depreciation that insurance company levy on the asset and enhances the claim benefits that policyholder receives.

Hence, for some policyholders, the benefits that “add on” offers may worth more than the extra premium they have paid.

 

6. Incentives for maintaining the car well – Some insurance companies also incentivize those who take good care of their car and maintain them well.

Some of the examples may include installing anti-theft devices in the car like a GPS tracking system, using high-quality batteries, good quality tires, etc.

These behaviors indicate that the car owner is well aware and knows how to maintain the car to make it last. This is turn reduces the risk of the insurance company and the possibility of making claims reduces.

 

7. Portability – If the policyholder is dissatisfied with the services of his insurance provider or getting better benefits with some other insurance company or want to change his insurance company for any other reasons, he is allowed to switch between insurance providers without losing certain benefits such as no-claim bonuses and other advantages earned in the previous policy. These benefits, however, can be exercised only at the time of renewal of the policy.

 

8. No claim bonus – MOTOR INSURANCE not only benefits the policyholder when the claim arises but also during claim-free years by providing them “No claim bonus”. No claim bonus is mostly offered in the form of a discounted premium.

Hence, policyholders should avoid filing claims of a small amount.

However, they should also be careful while filing a claim. The no-claim bonus is payable if the policyholder does not file any claim during the year. In case, the claim was filed and got rejected for any reason, the no claim bonus will be lost for that year.

 

 

WHY YOU MUST HAVE A COMPREHENSIVE MOTOR INSURANCE POLICY?

Every individual must opt for a comprehensive MOTOR INSURANCE POLICY for the following reasons.

1. Provides financial security to the car accident victim’s family – The primary objective of the 3^rd party MOTOR INSURANCE POLICY is to provide financial security to the car victim’s family in the event of his death.

In such cases, his family will not have to worry about their financial security as the insurance claim amount can take care of all their living expenses.

Most importantly, someone having a home loan but not life insurance policies can get great relief from the claim proceeds of such policies.

 

2. It protects your savings and reduce financial burden – MOTOR INSURANCE takes care of all the major expenses related to car repairs that could arise in case of major accidents or event like natural calamities or riots without depleting their savings.

 

3. Rising cases of accidental cases – The cost of car maintenance in India has increased multifold. Moreover, increasing traffic on roads and poor execution of traffic rules have also spiked cases of accidents in India.

Due to this, a regular traveler from home to work has become vulnerable to car accidents especially, in metro cities.

 

 

WHAT TO COMPARE WHILE BUYING A MOTOR INSURANCE POLICY?

Every individual, before buying a policy, must compare products across various insurance companies based on the following parameters.

1. Sum insured and premium – Sum insured is the maximum amount a policyholder can claim under the insurance contract in the event of car damage or in the case of victim’s death, whereas the premium is the price he pays to avail the insurance benefits.

Individuals must always look for the highest sum insured at the least possible premium.

However, though lower premiums should be preferred, the reason for the lower premium should not be ignored.

 

2. Claim settlement ratio – Claim settlement ratio indicates the percentage of claims that were honored out of all the claims an insurance company has received.

The higher claim settlement ratio depicts that either their policyholders are making genuine claims which are less likely to get rejected or the company is too generous in honoring those claims.

Hence, the insurance company with a higher claim settlement ratio should be preferred.

 

3. Solvency ratio – Solvency ratio indicates the financial health of the company. The company with a good solvency ratio is always stronger financially and would be in a much comfortable position to settle claims and not find reasons to reject it.

Hence, one should not ignore this factor while comparing the products. As per IRDA, every life insurance provider must maintain the minimum solvency ratio of 1.5.

 

4. No claim bonus – The amount of incentive in the form of no claim bonus differs from company to company.

Hence, one should compare this feature and consider buying the policy offering the maximum no claim bonus for having a claim-free year.

 

 

DO NOT OVERLOOK THESE PARAMETERS WHILE PURCHASING A MOTOR INSURANCE POLICY

The following are some of the important points that every insurance subscriber must consider while buying a MOTOR INSURANCE POLICY.

1. Buy sufficient cover – Under insurance does no good to the policyholder than having no insurance at all.

The total cover should be good enough to cover the minimum cost of repair of a damaged car.

Also, the 3^rd party insurance cover should be substantial enough to help his family replace the deceased’s net annual income taking into account the inflation cost.

 

2. Check claim settlement ratio – Claim settlement ratio is the ratio of the number of claims received by the insurance company to the number of claims settled by them. Always choose the company with a higher claim settlement ratio.

 

3. Recheck policy form and plan details – Every policyholder is entitled to receive 14 days free lookup period to go through the original policy documents and verify the details.

The 14 days starts from the day the policy document is received by the policyholder.

The scanned copy of the application form is also enclosed in the policy document and it is the sole responsibility of the policyholder to go through every detail mentioned in the form and ensure it is filled correctly.

Also, the insured must check the plan details and benefits to ensure that it includes what was promised at the time of signing up. Any error or deviation should be immediately informed to the insurance company.

 

4. Take a quick look at fine prints – It may not be practically possible to read all the terms and conditions or fine prints of the policy however, it is advisable to take some time and quickly read through the highlights of various clauses and check important details of the policy.

 

5. Check to add on covers the policy offers – Insurance policies also have provisions for add on covers like personal accident plans, zero depreciation cover and other benefits that can widen the scope of coverage.

Policyholders must check and capitalize on all these benefits as per their requirements based on their requirements.

 

 

REASONS WHY YOUR INSURANCE CLAIMS CAN GET REJECTED

The following are some of the key reasons for rejection of insurance claims.

1. Withholding or falsifying critical information in the application form – Concealing critical information about the car like any past accidents, configuration of the car, existing insurance policies, etc. while filling the application form can prove expensive at the time of filing the claim and may lead to rejection of the same.

A policyholder needs to ensure that every bit of information provided in the application form is correct.

Hence, they should avoid asking any 3^rd party to fill up the application form and fill it up themselves instead.

 

2. Failing to renew the policy on time – Every insurance company will give their policyholders a maximum of 30 days of the grace period if they fail to renew the policy by the due date.

If the policyholder still fails to act then the policy will get lapsed and any claim arising after that will be denied.

 

3. The event was excluded from the scope of coverage – The insurance contract mentions a list of certain exclusions. If the claim is filed for any of the event mentioned in the list of exclusions will not be honored by the insurance company.

 

4. Failing to follow traffic rules – If the accident occurs as a result of breaking certain traffic rules like jumping the signal or driving without having a valid driving license can form the basis of rejection of your insurance claim.

 

5. Causing delay in filing the claim – All claims are required to be filed within 7 to 15 days from the day the event has occurred. Any delay will call for unnecessary complications and justifications from the policyholder and there are slight chances that the claim can even get rejected.

 

 

LIST OF THE MOST COMMON EXCLUSIONS UNDER MOTOR INSURANCE POLICIES

The following is the list of some of the most common exclusions under the MOTOR INSURANCE POLICIES.

1. Wear and tear – It does not cover the repair and replacement cost of the car spare parts or tires due to wear and tear.

 

2. Mechanical breakdown – The car if not maintained properly can have frequent mechanical breakdowns. Sometimes, certain parts of the car need to be replaced. The expenses involved in this process will not be covered under MOTOR INSURANCE PLANS.

 

3. Regular maintenance – Every car is required to be maintained like the wheels need to be aligned regularly, oil needs to be replaced after the car covers certain kilometers, etc. These kinds of expenses cannot be claimed.

 

4. Influence of alcohol or drugs – If a car accident occurs while the policyholder was under the influence of intoxicants like drugs or alcohol then he would not be able to claim any of the insurance benefits.

However, it is excluded only if that state is proved to be the primary reason for the accident.

E.g. If a policyholder is driving the car under the influence of alcohol and meets with an accident then he is not covered, however, if the car is being driven by his driver who is not under the influence of alcohol and meets with an accident then the losses will be covered.

 

5. If the event has occurred outside India – Motor insurance policies are valid only in India.