An Introduction to Motor Insurance: 10 Terms to Know

Motor insurance is a crucial aspect of owning and driving a vehicle in India. Not only is it mandatory as per the Motor Vehicles Act, but it also offers protection against unforeseen situations such as accidents, theft, and natural calamities. But, motor insurance policy can be confusing, especially if you're a first-time buyer.

Listed below are the 10 motor insurance-related terms that you should know:

10 Terms to Know About Motor Insurance

Third-Party Insurance: Third-party insurance is the basic and mandatory type of motor insurance policy in India. It covers damages to a third party’s individual or property damage in case of an accident. It does not cover damages to your own vehicle or injuries occurred during the accident.

Comprehensive Insurance: Comprehensive insurance covers both third-party damages and damages to your vehicle, along with personal injuries. It also covers damages due to theft, natural calamities like floods, earthquakes, and man-made calamities like riots, vandalism, etc. Comprehensive insurance is more expensive than third-party insurance but offers better protection.

No-Claim Bonus (NCB): If you do not claim on your motor insurance policy in a policy year, you are eligible for a no-claim bonus. It is a discount on the premium payable at the time of renewal. The discount increases with each claim-free year, generally up to a maximum of 50% after five consecutive claim-free years. This discount is applicable only on the Own Damage (OD) premium component of the policy.

Own Damage (OD) Premium: The Own Damage (OD) premium is the part of the motor insurance premium that covers the damages to your vehicle in case of an accident or theft.

Deductible: A deductible is an amount that the policyholder has to pay from their pocket before the insurance company starts paying for the damages in case of a claim. The amount of the deductible is decided by the policyholder at the time of purchasing the policy. If the deductible is higher, the premium would be lower and vice versa.

Insured Declared Value (IDV): It is the maximum amount paid by the insurance company in case of a total loss or theft of the vehicle. It is the market value minus the depreciation. A higher IDV means a higher premium. It is important to declare the correct IDV to ensure adequate coverage.

Premium: Premium is the amount that the policyholder pays to the insurance company for the motor insurance policy. It is calculated based on various factors such as the type of policy, make and model of the vehicle, age of the vehicle, location, etc.

Add-On Covers: Add-on covers, also known as riders, are additional coverage options that can be added to the base motor insurance policy at an extra cost. Examples of add-on covers include zero depreciation cover, engine protection cover, roadside assistance cover, etc.

Exclusions: Exclusions are situations or damages that are not covered by the motor insurance policy. Some common exclusion includes damages due to drunk driving, intentional damage, war, nuclear risk, etc.

Cashless Claim Settlement: Cashless claim settlement is a facility offered by the insurance company, where the policyholder can get their vehicle repaired at a network garage without paying any cash. In this case, the insurer will directly settle the bill with the garage.

In conclusion, understanding the key terms related to the motor insurance policy is a basic need. It can help you make informed decisions while purchasing and renewing your policy. Having a comprehensive motor insurance policy that covers your needs can provide you with financial protection in case of any unforeseen incidents on the road.