Easy Rider

Most car owners are not aware of what their vehicles are insured against.A MONEY TODAY primer on how to be financially secure while on the road.

By Narayan Krishnamurthy        Print Edition: December 14, 2006

A motor accident is never a pleasant experience. Very few people deliberately get on the wrong side of the law, but as the old saying goes: accidents will happen. And usually, they are somebody's fault. Unfortunately, that somebody could be you too. The law mandates a car to be driven only if it has at least the liability-only cover, to protect others— people and structures that may suffer damages because of your accident.

Says K. Krishnamurthy, head (underwriting), Bajaj Allianz General Insurance: “The two biggest reasons for taking motor insurance is asset protection and security against the uncertainties of road travel and rash drivers.”

Motor insurance can be split into three parts: liability-only cover that is stipulated by law, without which you legally cannot drive a vehicle on the roads; own damage that protects your car against accident-related damages; and insuring the car for theft or fire. In case of cars the annual premium for liability-only cover is Rs 500, Rs 600 and Rs 700 for automobiles with cubic capacity less than 1000cc, between 1000cc and 1500cc, and above 1500cc respectively. The policy comes with an in-built cover for Rs 6,000 and you can increase
the liability to Rs 7.5 lakh with an additional payment of Rs 100.

The own-damage premiums are based on the rates (see Premium Navigator) that are again fixed across insurers. Currently a fast and rash driving 20-year-old pays the same premium for a sporty car as a 40-something staid, cautious executive pays for a mid-size sedan. This anomaly is likely to change in the near future. However, the owndamage premium is governed by the age of the car, its geographical location and its cubic capacity.

With changing times, the fuel that vehicles run on are no more restricted to diesel or petrol. These days cars are manufactured to run on alternate and cleaner fuel like CNG, which changes the risk profile of the car as well.

The scope of car insurance changes if you are opting to get a car fitted with bi-fuel system (CNG/LPG). You automatically attract an additional premium at 4% on the value of such kit for owndamage cover. And, an additional Rs 60 towards the liability-only cover. If you are adding electrical fittings that are not part of the standard car model by the manufacturer, such additional cover can be added at a 4% premium on  the value of such fittings.

“Most often policyholders overlook the policy document and do not realise what risks their cars are covered for,” says Krishnamurthy. Which means if the six-CD changer fitted in your car is not insured and is lost, you get nothing.

There is also the provision to insure your car against fire and theft at an additional premium, which works to 25% and 30% of the own-damage premium if taken separately or 50% if taken together. “There is also room to cover for your driver's life against accident in the policy,” says A Sen Sarma, executive vice-president, Iffco-Tokio general insurance. At an additional premium of Rs 100 the car’s driver can be insured for accident-related death or permanent disability.

But what happens when an accident happens? You need to raise a claim with your insurer and take it to a garage for repairs. The insurer then sends a surveyor who assesses the damage and arrives at an estimate, which is then processed.

“Never start repairs on the car without the surveyor’s report and estimate. Claim settlements get complicated if the procedure is not followed,” advises Sarma. And once the repairs have been carried, the depreciated component of the repaired and replaced parts is what you land up paying.

These days most insurers provide a cashless settlement procedure wherein once the car goes in for a claim, the claimant need not pay to the garage, as the insurer settles the bill on his behalf.

“With cashless claim the norm of the day, all you do is pay the depreciated component of your claim amount as the rest is settled by the insurer,” explains Sarma. However, if you still do not have the facility, there is always the traditional way to pay upfront and then raise a claim.

While cashless settlements make for greater convenience for policyholders, it also makes the insurer negotiate on your behalf for a better rate with the garage. But with the claims, issues of depreciation and losing your no-claim bonus (NCB) sets in.

The NCB is an incentive that the car earns each passing year when a no-claim is made on the own-damage component and goes up from 20% in the second year to as high as 50% in the sixth year, which can drastically slash your premium outgoes (see Smart Insurance Tips).

However, if you make a claim each year, the reverse of an NCB sets in. “There is a loading on the premium if you raise a claim each year,” explains Krishnamurthy.

It thus pays to be safe. And one must be cautious when raising claims each year. Even a momentary aberration in your driving record will have huge financial implications.

Say for example, if you make an accident settlement claim in the year when you were entitled to a 50% waiver on the premium on the accumulated NCBs, the premium you pay the next year will be substantially higher. You will not be entitled to any NCB and have to start from the base again.

In effect, now more than ever, it appears, vehicle owners must get savvy about what goes into the claims settlement amount and decide which of those claims are worth raising at all.

“With labour costs pre-determined, there is little scope form frauds and there is much more transparency,” adds Sarma.

A welcome move for the insured, but the way motor insurance is packaged, the insured are compelled to absorb the financial shocks of even minor accidents.

All things considered, the orientation of the existing motor insurance policy offers enough scope for one to protect one’s prized car from nearly all kinds of risks.

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