If you’re new to car insurance, it can seem a bit complex and daunting. Start by understanding the very basics of this industry. In this article, we are going to highlight some of the basic facts that will help you understand car insurance and eventually buy the most suitable insurance policy for your car.
1. Select a font that meets your needs
Remember that there are two types of car insurance policies: third-party car insurance and all-risk policies. The former is mandatory under Indian law, however, more covers and benefits are offered by the latter. If you want to benefit from a minimum coverage, that is to say only against civil liability, opt for motor vehicle liability insurance. However, if you also want to protect your car, opt for a comprehensive policy.
2. Set your vehicle’s IDV correctly
IDV is auto insurance jargon that you will encounter frequently when purchasing the policy. IDV stands for Insured Declared Value. This is the approximate current market price of your car. Note that the IDV is not the resale value of your vehicle, rather it is a benchmark for current value. Remember that you don’t need to set an IDV if you opt for third-party auto insurance. You can only select the IDV range when purchasing a full font.
In the event that your car is stolen or encounters a major accident where it is damaged beyond repair, the car will be considered a “total loss”. This is where IDV will come into play. Your insurance company (i.e. ACKO) will then compensate you for the approximate IDV amount that you had defined when purchasing the policy. Thus, it is very important to set the correct IDV. Setting a higher amount will increase car insurance prices, while setting a lower amount will reduce the claim amount.
Also read: IRDAI rules for car insurance
3. A higher deductible may reduce the premium, but it also reduces the amount of the claim
A deductible is an amount that the policyholder must pay when the claim is settled. This is a small amount paid as a co-payment by the insured. Basically, there are two types of auto insurance deductibles – mandatory and voluntary. You can choose the amount you wish to pay at the time of claiming the voluntary deductible. It is commonly believed that setting a higher deductible is beneficial for safe drivers. However, setting a higher deductible will result in a lower claim amount. So be careful when setting a voluntary deductible.
4. Only useful add-ons should be purchased
If you have opted for a comprehensive car insurance policy, you will have the option of selecting additional covers, i.e. add-ons. If you have a new car, you can choose from a wide range of options, for example, Zero Depreciation Add-On, Return to Invoice Cover, Roadside Assistance Cover, Engine Protection Add-On, No Claim Bonus (NCB ) Cover , etc. Each add-on must be purchased separately. This will increase the cost of your policy. You should select only add-ons that meet your needs. For example, if you think there is really less chance of making a claim, you can skip NCB coverage.
Also Read: Comprehensive vs Third-Party Car Insurance
5. Timely renewal will help you keep your SOP
It is not only necessary to take out an insurance policy, but also to keep it active at all times. Usually a car insurance policy is valid for 1 year, long term policies are also available. You must renew your auto insurance on time or the policy will expire. An expired policy is of no use and will not provide any kind of financial security to you or the third party. Also, you risk losing the accumulated NCB, i.e. no-claims bonus, if you do not renew the policy on time. NCB is a discount you receive on car insurance prices when you make no claims. Since this discount can be as high as 50% for five consecutive claim-free years, you need to renew the policy in time to keep it. Failure to renew after 90 days of policy expiration will result in the loss of this benefit and also a higher premium amount during the renewal period
These are some of the basics that will help you understand the concept of auto insurance. Remember to read the terms and conditions, exclusions and fine print mentioned on the policy document.