• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Nath Balakrishnan

YOU have just purchased a car that has recently been launched, and are understandably proud of your latest acquisition. After all, owning a car is a dream for most middle-class families. Driving around in a new car is, indeed, a pleasure. But the plot can go horribly wrong if the car is involved in an accident or, worse, gets stolen. Repair work can be expensive. It is in such circumstances that one realises the importance of vehicle insurance. Such an insurance policy chips in for the repair work cost, and also compensates the owner if the car gets stolen or destroyed in an act of nature such as an earthquake.

How the policy works

Essentially, this policy is of two types: One that provides third party liability for injury/death and property damage apart from personal accident cover for owner-driver; the other includes loss or damage to vehicle apart from the previously mentioned cover.

The starting point is determining the sum assured of the vehicle (also referred to as the Insured Declared Value or IDV). This is based on the listed selling price of the manufacturer, and is also a function of the vehicle's age, which plays a role in determining the percentage of depreciation for arriving at the IDV. For instance, a 5 per cent depreciation charge on the selling price will be levied for a car that is not older than six months. This will be the value of the sum assured. A car that is older than four years but not exceeding five will attract a depreciation charge of 50 per cent. For vehicles that are older than five years, the sum assured will be arrived at on the basis of an agreement between the insurer and the insurance company.

Vehicle insurance comes under the ambit of tariff products; premium rates are determined by an advisory committee on tariffs and are, therefore, standard across all insurers. Normally, the premiums that are charged vary between 3-4 per cent of the IDV.

Claim settlement

In the event of an accident, the insurance company will refund charges incurred for repair after it is convinced about the veracity of the claim.

However, do bear in mind that in the event of a partial damage to the vehicle, a rate of depreciation different from that levied on the car (depending on its age) will be imposed on rubber/plastic parts and those made of fibre glass (50 per cent and 30 per cent respectively).

Personal accident cover

Personal accident cover for the person insured (if he is the owner-driver) is built in as part of the policy, subject to a maximum of Rs 2 lakh. In the event of the person insured suffering partial disability, the payout will be a percentage of the above amount. However, for this claim to be settled the car has to be necessarily registered in the name of the owner and he should possess a valid driving licence.

On payment of an additional premium, one can also take personal accident cover for a paid driver and other unnamed passengers. Additional premium can be paid to cover electrical/electronic goods (not listed in manufacturer's selling price) and CNG/LPG kit.

Bonuses

For every year during which there has not been a claim, the insuree will be entitled to a discount in the premium when he renews the policy with the same insurer. The percentage of discount will increase for every additional no-claim year. Should a claim arise during one of these years, the discount will revert to nil from the subsequent year onwards.

Other discounts

Discounts on premiums are available if the insured is a member of a recognised automobile association and also if an approved anti-theft device is installed in the vehicle.

Suitability

Considering the financial investment and the emotional attachment towards a car, an additional premium is a small price to pay for ensuring the safety of the vehicle. Customers will be better off examining the plans that have been put out by various private players, such as Royal Sundaram, Cholamandalam Insurance and Bajaj Allianz, as also the established players such as Oriental Insurance and New India rather than settling for the insurance plan bundled in by the dealer. That effort will guarantee a safe and smooth ride for the years to follow.

Bearing the deductibles

THIS brings us to another important facet in the settlement of a claim — the deductible. The deductible represents that portion of the claim that will have to be paid by the customer at the time of claim settlement.

To illustrate with an example, if the claim amount is Rs 20,000, the company will pay Rs 19,500, and the rest has to be coughed up by the customer. The fixed amount to be paid out by the customer every time a claim is made is a function of the cubic capacity of the car's engine. For cars with a capacity of up to 1500 cc, the deductible is set at Rs 500; for cars of higher capacity, the amount is Rs 1,000. This is a compulsory deductible that has to be forked out by the customer regardless of the claim's size.

Vehicle insurance also incorporates the concept of a voluntary deductible which means that if the customer is willing to pay an amount that is higher that the compulsory deductible, he will be entitled to a discount in the premiums to be paid. The extent of the discount will be a direct function of the amount that a customer is willing to pay over and above the compulsory deductible.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Welcast Steels: Accept

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line