On the road, it's impossible . to tell with surety what awaits you round the bend. But with vehicle insurance by your side, you can cushion yourself against the adverse financial repercussions of mishaps that could befall you and your vehicle. Vehicle insurance offers you cover against every conceivable risk related to your vehicle: theft or damage to it, death of the driver and passengers in an accident, and damage caused by your vehicle to another person or property. WHAT IS IT? All vehicle insurance policies can be broken down under three heads: Third party liability. You, the insured, are the first party, the insurer the second party, and every other person the third party. The law makes it mandatory for every vehicle owner to have at least third party motor insurance. This covers your liability to compensate any person up to a pre specified amount, subject to a court ruling, for bodily injuries and property damage caused by your vehicle. But third party cover alone is not adequate. With the ever present possibility of accidents and exorbitant repair costs, it makes sense to go beyond compulsory third party cover, and buy 'comprehensive motor insurance cover', the nuts and bolts of which are explained in the subsequent two heads. Theft and own damage. This entitles you to claim compensation in case your vehicle is stolen or damaged. On the standard policy, the annual premium is a function of the type of vehicle (two wheeler or four wheeler, commercial or private), its size (cubic capacity is the benchmark used), its age and the region in which it is registered. The premium is calculated on the basis of something called the Insured Declared Value (IDV) of the vehicle, which is basically the depreciated value of the vehicle agreed upon by the insurer and the policyholder. The 1DV of a vehicle reduces with age. Insurers give a depreciation schedule for up to five years, which is the starting point for deciding the IDV of a vehicle; this IDV figure is scaled up or down depending on the condition of the vehicle. The depreciation schedule is identical for two wheelers and four wheelers . You can get your vehicle insured for a value greater than the IDV calculated on the basis of the specified depreciation schedule, on account of, say, better maintenance or high priced accessories. However, in case of a claim, the onus is on you to justify the higher IDV. Cover for occupants of vehicle. This section provides cover against death or injury to the vehicle driver and passengers. The maximum cover that can be taken under this section is Rs 1 lakh for a driver and Rs 2 lakh for each passenger. FINE PRINT 1. The premium rates are specified by the IRDA and are identical across insurers. However, there is one instance when an insurer can ask for a higher premium: if you have a track record of making claims, the insurer can hike the premium rate in vehicle insurance, the premium payable as percentage of the IDV by up to 100 per cent. Vehicle insurance policies have a compulsory 'deductible' an arrangement whereby the claim amount up to a pre specified limit has to be borne by the policyholder 2.Insurers offer discounts on premiums to policyholders who opt for a higher deductible. There's a catch, though. When you increase the deductible, you effectively transfer a greater amount of risk to yourself than you would otherwise do under the standard policy, the reward for which is a fall in premium. As the deductible increases, the premium falls. It might seem like a strategy to save premiums, but remember you're taking on greater risk. It's a cost benefit tradeoff, and you have to find your comfort level. 3. In the event of replacement of parts, the insurer pays only the depreciated value, which means you might have to bear a portion of the claim amount. Illustratively, insurers consider the value of plastic parts to depreciate at 50 per cent, with the first drawdown in value occurring at the time of the sale of vehicle. So, even if you get a plastic bumper replaced on the same day as you bought the car and make a claim, your insurer will reimburse you only 50 per cent of the cost of a new bumper; you'll have to pay the balance. The depreciation rates vary from item to item and, in some cases, also with the age of the item (See table: Depreciation Rates on Spare Parts). 4. An additional premium is charged to insure items not originally part of the vehicle such as CNG/LPG kits, electronic items (stereos and televisions sets) and electrical fittings (extra lights and horns). 5. Vehicles manufactured in other countries have to be valued by an automobile engineer at the time of getting them insured. There's a 30 per cent mark up on premiums payable on vehicles owned by embassies. Also, in case of damage to the windscreen of such vehicles, the compensation is limited to 3 percentage of the value of the vehicle or $700, whichever is lower. 6. You can make a claim even if the accident happened while driving on the wrong side of the road or while committing a traffic violation without any criminal intent. EXCLUSIONS 1. The policy doesn't cover for loss or damage if the driver of the vehicle was drunk at the time of the accident which has to be established through a breath analyzer test or a stomach wash test or driving without a valid license. 2. Damage to tires (unless the vehicle is also damaged), wear and tear, routine maintenance and mechanical breakdown. TIPS 1 Insurers rewards policyholders for not making claims, by giving them a discount on the 'own damage' premium of up to 50 per cent, on a reducing balance basis, in future years . However, if you make a claim, you have to start all over again, from year 2 and also pay a mark up in premium equivalent to the discount you were earning. In fact, because of this 'back to square one' clause, it sometimes makes financial sense not to raise small claims. 2.The only condition to avail of this discount is that you have to sell off your old vehicle. Even if you wish to retain your old vehicle, you can get around this clause by gifting the old vehicle to a family member. In this case, your family's savings in premium will be marginally less, as the old vehicle won't be entitled to any no claim bonus on renewal next year and will have to start from scratch on the no claim bonus schedule. Even so, the premium saving on the new car will far outweigh the higher outgo on the old car, resulting in a net gain. MAKING A CLAIM If your vehicle is damaged in an accident, take it to the garage, and notify your insurer. If the accident takes place in another city, ask your insurer to do a spot survey before getting the vehicle towed to the garage. The insurer will send a surveyor to inspect.
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