In India, if you own a motor vehicle, it is mandatory for you to have insurance for your vehicle. However, buying the right motor insurance for your vehicle can be a daunting task as there are a plethora of insurers available in the market offering different types of motor insurance plans. Moreover, while buying a motor insurance plan for your vehicle it is important to have enough knowledge of the various jargon and terminologies in order to understand the offerings of the policy well. A comprehensive motor insurance policy safeguards the vehicle owner against any financial loss/damage to the vehicle. Under a motor insurance plan, there are two major components- Third-Party & Own Damage Cover. To help you navigate swiftly through the buying process, here are some important terms related to motor insurance that you must know before buying or renewing your motor insurance policy.
One of the most common and important terms associated with a motor insurance policy is Insured Declared Value (IDV) – the current market value of your vehicle as per the insurer. IDV is a very crucial factor in motor insurance as this is the highest value that your insurer will pay you in case of theft or total damage to your vehicle. When buying new motor insurance for your vehicle or getting your motor insurance policy renewed, it is always advised to keep the IDV at the highest possible amount so that the market value of your vehicle remains high. While lower IDV may mean a lower premium, it is advisable to have the maximum IDV possible of your vehicle in your motor insurance policy.
Just like health insurance, motor insurance also offers No-Claim Bonus to its customers for every claim-free year. Under a No-claim bonus, if a customer does not make any claim within the policy year, the insurer rewards the customer in the form of a no-claim bonus. Under a motor insurance policy, a No-claim bonus is generally in the form of a discount on next year’s insurance premium. Since the NCB discount amount can be quite large, it is worth refraining from registering a claim for minor damages, and instead of holding out for the NCB.
Yet another important term associated with a motor insurance policy is Third-party Cover. As mentioned above, motor insurance is a mix of two main components – Third-party and Own-damage. While a Third party refers to everyone apart from the two parties involved, Own-damage refers to damages to your own vehicle. As per the Motor Vehicles Act, it is mandatory to have a third-party cover to drive your vehicle on the roads. In case of an accident, if your vehicle hits any third party and causes damages, the insurer is liable for the expenses. The victim can file a claim against the first party/vehicle owner and the insurer of the vehicle owner will be liable to pay for the damages.
Apart from Third Party cover, there is own damage cover as well in a motor insurance plan. The own-damage component of the motor insurance policy protects the owner’s vehicle from any damages or physical loss. In case your vehicle is damaged due to natural disasters like earthquakes and tornadoes, or accidents like fires and explosions, your insurers will pay for the repair expenses without you having to worry about the cost. One must note that while the premium for Third-party cover is decided by the insurance regulator (IRDAI), the own-damage premium differs according to the model, cubic capacity, geographical zones, etc. of the vehicle. When buying a motor insurance plan, do make sure to buy a comprehensive policy that includes both Own-damage cover and Third-party cover.
(The writer is CBO, Policybazaar.com. Views expressed are personal)