Frequently Asked Questions on car Insurance -

[Sanjay]

Is car insurance compulsory in India?
Under the provisions of Motor Vehicles Act all the vehicles which are plying in public places shall have at insurance policy at least to cover third party liability as specified under the Act.

What type of policies are available for motor vehicles Insurance?
There are two types of policies available for motor vehicles -

1. Third party Insurance and
2. Comprehensive insurance policy.

What is a Third party Insurance policy?
It is mandatory for every auto owner to get third party insurance cover. It covers the car owners against Act Risks under Section 146 of Motor Vehicles Act 1988. The scope of cover of the third party insurance is to pay compensation for death of bodily injuries to third parties and also damage done to the property of the third party. For cars the 'Act Only Policy' covers third party property damages upto Rs. 6000. For theft or fire risk covering you need to pay more.

What is a 'comprehensive insurance' policy?
A comprehensive insurance policy is more than a normal third party insurance. It includes third party cover, any damage or loss caused to the vehicle due to reasons like fire, accident, theft, flood, earthquake, riots, etc. You can also get insurance for car accessories like music system and air-conditioner.
However, you will have to pay additionally for the additional insurance cover.

What risks are covered under the comprehensive insurance' Policy?
The insurance company will indemnify the insured persons against loss or damage caused to the insured vehicle by any of the following:

• fire, explosion, self ignition or lightning
• burglary, housebreaking or theft
• riot and strike
• earthquake (fire and shock damage)
• flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm,
  frost,
• accidental external means
• malicious act
• terrorist activity
• while in transit by road, rail, inland waterway, lift, elevator or air
• land or rockslide
• and Third Party Cover.

What are the risks covered under Third Party Policy ?
The insurance company covers any amount which is legally required to be paid by the insured person, to third parties on Account of their death, bodily injury or damage to their property arising out of the use of the insured car. The insurance company also indemnifies the legal costs and expenses incurred by the claimant, if the insured becomes legally liable to pay them.

The insurance company will further indemnify any legal liability payable by the insured to the occupants in the car (insured vehicle) provided they are not carried for hire or reward and are not employees / family members of insured.

The indemnity under this policy is available to any driver who is driving the car if he has been permitted to do so by the insured and provided such driver does not have any other similar cover.

What are the categories of vehicles that are covered by a Motor Insurance Policy?
For the purpose of insurance, motor vehicles are divided into three classes:

Private cars: This category comprises of cars, including station wagons, used for social, domestic, business or professional purposes (excluding those used for the carriage of goods other than samples)

Motor Cycles: This includes motorcycles with or without sidecars, pedal cycles, mechanically assisted pedal cycles and motor scooters with or without sidecars

Commercial Vehicles: All vehicles excluding private cars, motor cycles and vehicles running on rails come under this category

How is premium calculated?
The premium of the insurance depends on various reasons. The factors include the value of the vehicle, the power of engine, seating capacity, vehicle type, age of the car, city of registration, period of coverage, and the value of accessories like air-conditioner and music system.

How is the value of accessories calculated?
The value of the accessories is calculated on the basis of original cost of the accessory at the time of purchase less depreciation for the usage.

For what value the car is to be insured - Depreciated value or reinstatement value?
For the First five years the Insured Value is IDV. The car is neither to be insured for reinstatement value nor for depreciated value. It is to be insured for second-hand value in the local market for a similar type of car for a
similar model. In the event of loss, the liability of insurance company is the maximum compared to the Market value or the amount of insurance whichever is less.

How Insured Declared Value (IDV) of the car gets determined?
The IDV of the vehicle is to be fixed on the basis of various factors like the manufacturers listed selling price of the model, the vehicle proposed for insurance at the commencement of insurance renewal and less depreciation for usage. Normally most of the Insurance Company follow following rules to calculate IDV -

Age of the vehicle % of Depreciation
Not exceeding 6 months 5%
Exceeding 6 months but not exceeding 1 year 15%
Exceeding 1 year but not exceeding 2 years 20%
Exceeding 2 years but not exceeding 3 years 30%
Exceeding 3 years but not exceeding 4 years 40%
Exceeding 4 years but not exceeding 5 years 50%

What factors influence the premium for a car insurance?
The cubic capacity, use of car, normal area of operation and the value of car proposed for insurance decide the premium payable and also various extensions opted for.

How much would the insurance company pay in the event of an accident?
In case of an accident, the insurance company pays for cost of damaged parts which are replace and the labour cost to repair the vehicle. As per the revised regulations, depreciation is not deducted from the cost of the parts except for the tyres and tubes for which 50 percent depreciation is deducted.

What is a 'no-claim(NCB)' discount?
You get a 'no-claim' discount when you become eligible for a discount in the premium of a comprehensive insurance policy at 20% for the 1st year, 25% for the 2nd year, 35% for the 3rd year, 45% for the 4th year and 50% for 5th year afterwards.

The value of the discount is decided upon the insurance claims you have made in that particular year. The amount of discount is adjusted against renewal premium. At the time of renewing the policy the no claim bonus can be availed of. At the time of buying a new car you can transfer the no claim bonus to a new car from the last one.

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[Sanjay]

Are you eligible for a 'no-claim' discount?
In the case you do not claim for one year, you can avail of a no-claim discount, if you renew your policy with the same or a new insurance company. In the case your policy has expired, you can still avail the no claim bonus if you renew the policy within 90 days of its expiry date. When applying for no claim you can show as proof the documents related to the number of years no claim discount earned, the expiry date of your last insurance policy and any claims that have been made.

What are the minimum/ maximum percentages of the Bonus(NCB)?
The minimum Bonus is 20 percent, maximum is 50 percent
The rates of the NCBs (No Claim Bonus)

20% on 1st renewal.
25% on 2nd renewal.
35% on 3rd renewal.
45% on 4th renewal.
50% on 5th & subsequent renewals.

Can an insurance policy be renewed with some other company?
It is possible for you to transfer the insurance policy to some other company. It requires you to submit a new proposal form. In this case the new insurance company may make a physical inspection of your vehicle. A notable thing is that your bonus can also be transferred to the new policy.

On sale and transfer of vehicle, what happens to the Bonus?
The Bonus goes with the original owner since he can claim bonus on his next purchased vehicle. However the purchaser enjoys the bonus under seller's policy till the renewal date. On date of renewal, the bonus/malus has to start afresh.

What is voluntary excess/deductible?
A voluntary excess/deductible is the amount of money that you have to pay when you file a claim with a motor insurance company. For example if you file a claim of Rs 2000 and as per your plan, the deductible is 20%, i.e Rs 400. In this case you pay Rs 200 and the balance Rs 800 will be paid by the motor insurance company. You may opt for an insurance plan that is high on deductible and low on premium, in the case you are not going to file claims too often.


How is voluntary excess different from compulsory excess?
In case of voluntary excess, it is the client's option for which he gets discount in premium whereas compulsory excess is imposed by the insurance company in addition to Malus to take care of a bad claim experience for a particular car. For compulsory excess, no discount in the premium is allowed.

What extension of cover can be obtained with regard to private car?
The following are the prominent extra risks that can be covered in addition to the standard cover:

• Personal accident of insured, spouse and unnamed passengers
• Legal liability of the employees of the insured
• Wider Legal Liability to Drivers

What are the circumstances under which discounts are offered in premium ?
The following are the significant circumstances under which a discount is offered on the amount of premium to be paid:

• Where the insured is prepared to bear a fixed amount in respect of every claim for damages to the vehicle
• A discount commonly referred to as bonus is allowed on the premium when no claims are made against the policy during the relevant previous year
• A 5 percent discount is allowed if the insured is a member of a recognised Automobile Association (the amount of discount will not exceed Rs.100/- for private cars)
• Additional discount in the case your vehicle is fitted with anti theft devices, approved by the Automobile Research Association of India (ARAI). The amount of discount is usually the premium of 2.5% to a maximum of Rs 500.

What is the significance of a certificate of Insurance?
The Certificate of Insurance issued by the insurers in relation to every vehicle is the only evidence acceptable to the police authorities to show that valid insurance exists. This document has to be produced when demanded by an authorised police officer.

The Certificate of Insurance cannot be backdated. Hence, if a Policy is not renewed on or before the expiry date, the Certificate of Insurance in respect of new Insurance will be effective only from the date of New Insurance. For every renewal, a fresh certificate must be obtained. If there is any alternation in the risk during the currency of the insurance, the old certificate should be surrendered and a fresh one to be obtained. Duplicate Certificate in lieu of defaced, mutilated or lost certificates can be obtained on payment of prescribed fee and after production of an affidavit to that effect.

What is expected of the insured in the event of an accident involving damage to the vehicle and/or injury to third party ?

Damage to the Vehicle:
When an accident takes place, a report should be immediately filed with the insurance company and a set of claim forms submitted to them. An estimate for repairs and/or replacements has also to be prepared and submitted. The insurance company may then appoint an independent Surveyor who will also value the damage and hold discussions with the repairers and arrive at the amount at which the claim will be settled.

On completion of the survey, the repair work can be undertaken. When the relevant bills are produced, settlement will be made under the Policy. The claim amount may be paid either directly to the repairer or to the Insured if the latter has already made payment to the repairer and holds proof of the same.

In case of settlement of claim either for total loss of the vehicle or for replacement of certain items, such damaged vehicle or parts belong to the insurance company. They may arrange for disposal of the same in the best manner possible.

Death or Injury to Third Party:
The moment an accident takes place and a third party is involved, a report should be immediately filed with the police. Simultaneously, notice should be sent to the Insurance Company.

No settlement should be made with the third parties for any compensation to the latter and no commitment should be entered into with regard to the Insured's liability with the third parties.

All dealings with the third parties will be only with the knowledge and approval of the Insurance Company. Any claim from third parties will have to be suitably defended in consultation with the Insurance company and expenses for such defence will be payable by the insurance company if incurred with their consent.

Can Motor Insurance Policies be taken for a shorter term than the normal period of one year?
Motor Insurance Policies are normally taken for a period of one year. However, according to the requirements of the vehicle owner, a policy for a shorter term can be issued.

Situations do arise when a person plans to sell off his vehicle within a couple of months and he does not intend to renew his policy for another year. In such circumstances, he may go for a shorter period of cover. Short period insurance attracts Short Period Scale for calculating premium and obviously comes out costlier than the pro rata for the said period.

Short Period Scale

Period Not Exceeding Rate
1 week 10 percent of annual rate
1 month 25 percent of annual rate
2 months 35 percent of annual rate
3 months 50 percent of annual rate
4 months 60 percent of annual rate
6 months 75 percent of annual rate
8 months 85 percent of annual rate
Exceeding 8 months Full Annual Premium

Can the insurance premium be reduced?
If you maintain a claims-free record, you accumulate bonus points, which translate into discounts on policy renewal. When a policy holder doesn't not make a claim the insurance company provides a discount on the Own Damage part of the premium. In the case you have installed an anti-theft device in your vehicle, which is approved by the Automotive Research Association of India then a discount of up to Rs. 500 could be availed of. Another way for reducing the cost of premium is to opting for voluntary excess, which means opting to bear a certain amount of loss from each claim.

When you are buying a motor insurance policy, should you list your family members on it and can their driving record impact the insurance policy?
You should list your immediate family or your extended family members on your automotive insurance policy. It heps you later on in some emergency situation.

The family members' driving history certainly has impact on the the insurance company's decision to provide the insurance cover for your vehicle and also influences the rates of premium.

Why do insurance rate quotes vary depending on the insurer?
Usually the rate of insurance quote varies depending on the insurance company.

The company's claim experience, the types of people they insure and cost for doing business vary from company to company and may cause rates to differ. Another factor that affects the insurance premium is the city, where the car has been registered.

Do I get some discount on premium if I have installed anti-lock system and anti-theft alarm?
Yes, you get additional discount in the case your vehicle is fitted with anti theft devices, approved by the Automobile Research Association of India (ARAI). The amount of discount is usually the premium of 2.5% to a maximum of Rs 500.

Can a personally imported car be insured?
Yes, but only in the case the car is available as a standard production model in India and has an Indian registration number.

[PolicyWala]

Can the insurance policy of a second hand car be transferred in my name?
Yes. If you have purchased a used car, you can transfer the insurance policy to your name by informing the insurance company within 14 days from the date of purchase of the vehicle.

What if at the time of accident my car is being driven by some one else?
Liability follows the vehicle. So, the insurance on the car will apply even in the case it is being driven by some other person with your permission. Usually, the liability insurance of the person driving the car will have to pay in the case the amount of the loss exhausts your policy's limits.

Does the policy apply if I rent my car for a holiday?
Many insurers extend the liability to a non-owned vehicle when rented for personal use. Some companies have some restrictions on this use. Even some car rental companies have some restrictions. It is better to contact the insurance company to know about the restrictions and conditions applied by the company.

What are the costs that you have to bear, in case of a claim?
The costs that you have to bear include salvage value, cost of depreciation and compulsory deductibles.

What are the exclusions under car insurance policy?
The exclusions include wear and tear, depreciation, deliberate accidental loss, intoxicated driving, consequential loss, mechanical break down and some contractual liability.

What should be done in case of an insurance claim procedure?
The documents needed in the case of claim include proof of insurance policy, original and a copy of registration book, original and a copy of motor driving licence of the person driving the vehicle at the accident time, FIR in case of accident involving third party injury or damage, claim form along with the original estimate of repairs obtained from the workshop. After you submit the documents the insurance company appoints a surveyor, who inspects the damaged car and verifies the authenticity of the estimate of repairs. The car can be repaired only after the insurance surveyor has inspected it. You have to submit the final bill for damaged parts that have been replaced and the stamped receipt for payment made to the workshop. After the car has been repaired you have to make the payment as per the final estimate and submit the final estimate and stamped receipt to the insurance company for settlement of the claim. The surveyor surveys the car again and only then you can take delivery of your car.

If your car has been stolen, you need to report the case to the nearest police station as well as your insurance company. You also need to register the case to the authority where your car was first registered. You need to obtain a duplicate RC Book from the RTO office in the case of theft. In the case of theft the procedure for the insurance claim takes longer as the RTO and the police need a certain time period to try to recover the stolen car.