What is Motor Insurance Policy and What is the Best Motor Insurance Policy

If you are working, could you ever think about a day without using some kind of a transport facility? You have to either depend upon public transport or use your own two wheeler/car. If you want to cover the distance from your residence to your office in the fastest possible way, having an owned vehicle is a must. However, travelling on the road is full of risks. To protect the automobile users from certain inevitable risks, motor insurance can be of great help.

Motor insurance is meant to cover the damages of all kinds, natural as well as man-made. Similarly it also covers the owners of the vehicles, other passengers and third parties. 

It is not only important to get a motor insurance policy but also to keep it effective in order to protect yourself from any kind of damage/loss. Motor insurance is nothing but a type of insurance policy which covers your vehicles from potential risks financially. In India, motor insurance is mandatory. It provides coverage in case your vehicle is stolen. Monetary compensation is promised in case your vehicle gets damaged due to accident, fire, thunder, lightning, flood, riots etc.

Advantages of a Motor Insurance policy:

1. Risk of damage to your property is covered-There is always a risk of accident while driving a vehicle. Repairing a two wheeler or a four wheeler could be an expensive affair. If you buy a motor insurance, the insurance company compensates you in the event of a mishap. The repairing expenses and replacement of parts get covered. The cost of belongings in the vehicle at the time of accident too are paid. 
2. Third party Motor Insurance- In case a third party suffers damages because of your vehicle, there arises a liability to compensate. It could be an injury or even death. In India third party insurance is mandatory irrespective of the fact whether you get insurance for your own vehicle and yourself. 
3. Cost of hospitalisation gets covered-In case the owner of the vehicle suffers severe injuries resulting in heavy medical/hospitalisation expenses, the same is covered by motor insurance policies. Thus it saves the injured person from financial worries.
4. Compensation is paid in case of death-The family of the insured gets a lump sum amount in the event of death of the vehicle owner. The family of the deceased suffers financial difficulties in case he/she was the only earning person. The financial obligations of the family are protected because of the motor insurance policy. 
5. Other damages are also covered-Natural and manmade calamities could also happen. Flood, typhoon, cyclone, hailstorm, hurricane etc may damage the vehicle. Similarly fire, strikes, riots etc are also covered by the motor insurance policy. 

Looking at the above benefits, motor insurance becomes inevitable. If you have it, make sure that it is kept effective. It requires a yearly renewal. You may also consider add-ons to enhance the protection which you have already taken. Motor insurance renewal should be done keeping in mind the following points:

1. Insured’s Declared Value(IDV):It is the sum insured or the maximum value which the insurer will pay in case of total loss or if the vehicle is stolen. The IDV is arrived at by taking the manufacturer’s listed selling price of the particular model of the vehicle at the time of commencement of the policy or at the time of renewal of the insurance. Vehicles above five years are subject to valuation by the insurer depending upon their condition.But the Insurer and the policyholder can mutually arrive at an agreed IPV. Premium is dependent on a vehicle’s IDV. If you are planning to change your insurer for the sake of reduced premium, then you should note that the IDV too will get reduced in that case. This will affect your future claims and might leave you undercovered.
2. No claim bonus-If the policyholder hasn’t made any claim in the preceding policy period, he becomes eligible for a no claim bonus. The insurer allows an NCB of maximum 50 percent for five consecutive claim free years. There are two types of premiums namely OD and TP. If you opt for NCB it will reduce the OD premium. OD premium constitutes the majority of the premium amount and hence it is important to understand its calculation.

OD stands for Own Damage Premium and does not include the third party liability premium(TP) nor the vehicle. TP stands for third party. NCB is given to the insured and it can be transferred to any new vehicle bought. The policy shall lapse if it is not renewed within 90 days and the NCB too will be lost.

3. Deductibles-It is a minimum specified amount to be borne by the policyholder and the balance to be paid by the insurance company. A standard policy has a mandatory deductible for two wheelers and four wheelers. A higher deductible reduces the chances of fake claims and also lessens the burden of the insurer. In exchange a lower premium may be allowed. However, there should be a balance between the amount to be paid by both the parties, otherwise the very purpose of getting insurance is not served. Those with selective vehicle usage or with vehicle age over 5 years may consider this option while renewing the policy.
4. Portability-The motor insurance is portable. You can change the insurer and still enjoy the benefit of no-claim bonus along with the insurance cover. While renewing the policy, you may port the motor insurance. There could be many reasons like lower premium, better coverage, better service and claim settlement process etc behind porting the policy. No claim bonus is continued even if the insurance gets ported.
5. Add-ons-Add-on covers are available for the risks which are usually not covered under a standard policy. For example a personal accident cover to the co-passengers in your vehicle without specifying their names. Likewise there are no-claim bonus protection covers, Workmen’s Compensation to the driver, accidental hospitalization and zero depreciation covers. Add-on covers provide additional coverage at an affordable price. Depending upon the risk that your vehicle faces, you can select an appropriate add-on cover while renewing your policy. These add-ons are for cars which are less than 5 years old.

Few of them are explained in detail here-

• Nil Depreciation Cover: Vehicle’s value depreciates over time. When you make a claim, the depreciated value of the vehicle is taken into account. By Choosing a ‘nil depreciation cover’ depreciation is not counted.
• Engine Protection Cover:This type of add-on is specifically meant for engine damage. The repair/replacement cost shall be borne by the insurer.
• NCB protect cover: If a claim is made by the policyholder in a policy year, he loses his right to NCB. However by taking this add-on the NCB remains effective despite filing a claim.
• Consumable Cover:There are different parts of a vehicle which are not covered under the insurance policy. But this add-on will cover up the cost of parts like AC gas, engine oil, nuts,bolts, bail-bearings, coolant etc.
• Return to Invoice Cover:If the car suffers total damage, the policyholder will get the original on-road cost of the car by taking this add-on.

It is important to understand other key terms that you may consider while buying an insurance policy.

Over and above the key terms which have been described in the above paragraphs, here are a few more:

The other key features of Motor Insurance Policy that you should take into account while buying a motor insurance policy

Usually the motor insurance policies comprise of the following main features:

• Comprehensive Coverage-It provides protection against both the natural and man-made calamities to you and your vehicle. Thus, you can rest assured that if anything happens to you and/or your vehicle, you will not have to suffer financial losses. It is also known as ‘own-damage’ or a ‘other than collision’ car insurance. Comprehensive cover provides more security than a third party cover. But that does not mean it will be expensive. You can check the quotes online to compare any comprehensive cover with a third party cover. It gives coverage against lawsuits if there is an accident. If the car is damaged completely, it can give you financial aid. If your own car suffered damages, it will be covered unlike a third party cover. The highest level of protection can be assured only by this type of coverage.
• Liability only-Third party plans cover only third parties and not you and your vehicle because it is mandatory in India to get a third party insurance. In order to protect yourself along with your vehicle you have to choose a comprehensive plan. Commercial vehicles like goods/passenger carrying vehicles, private and public carriers and other special types of vehicles can be insured. The owner of the vehicle and the driver both can get personal accident covers to protect against accidental death and total disability.
• Risk covered-Your vehicle may suffer damages due to natural and man-made calamities and also while in transit. You need to pay attention to the kind of damages that are getting covered by the policy you want to buy. Mostly motor vehicle policy provides for accidents caused by external means, in-transit by rail/road, air or waterway, third party legal liability and death compensation in case of owner/driver’s death.
• Premium and premium saving options-The amount of premium is decided by the type of vehicle depending on its model,capacity,fuel type,age etc., the vehicle owner’s age and profession, the city where you are located, modifications made to the vehicle and other accessories added to it and the claim experience of the owner. By installing safety devices to your vehicle and/or getting a membership of an automobile association may reduce your premium. Higher deductibles too can reduce the amount of premium. Premium payment should never be skipped. Else it results in discontinuance of the policy which will prove to be costly.

• Claims-The vehicle can be repaired at the garage preferred by the owner and claim is reimbursed to him/her if it suffers damages. Cashless claims can be made if the insurance company allows the same by getting the vehicle repaired at the authorized garages.
• Exclusions-Depreciation, normal wear and tear, mechanical or electrical breakdown are not covered under motor insurance. Also the vehicle should not be used for purposes other than what is intended for, it should not be driven by a person without license and the driver should not be driving the vehicle under the influence of alcohol or drugs. These are the common exclusions in case of a motor insurance. Even if you have taken a comprehensive cover, it will not pay for damage to tyres and tubes. Replacement cost for the damaged vehicle is limited only up to a certain extent only by the insurer.

The next important point is: From whom should you buy the motor insurance? There are many players in the market. Car/bike dealers also sell motor insurance policies.

Whom should you prefer? You may opt for the conventional way of getting motor insurance though established companies as well. The intermediary or an insurance agent can be an individual or a corporate or an insurance broker or Motor Insurance Service Providers(MISP)

1. When you get it through agents, you will find them to be of two types. One of them is Captive agents who sell the policies of only one major insurer. These agents work for that particular company only. All the customer related jobs are taken care of by them and the customer service centre is used to a lesser extent to approach the company.Then there are independent agents who sell various insurance policies offered by different insurance companies. They might primarily carry out selling work of one of the insurance companies but they also deal with other insurance providers for their customers. There are some benefits when you get insurance through an agent. They can find the best suitable product for you. They can get you the best deals by offering better discounts. Claim settlement procedure also becomes easy with their help. They know how to approach the insurer in case a claim is lodged and how to carry out the claim intimation process correctly.

When you get a motor insurance through an agent, make sure he/she possesses the required IRDA licence to sell insurance. Be careful about what is being sold to you. To get more commissions, an agent might be selling the product which you do not need at all. Only after you are convinced about the policy which you want to buy, allow the agent to proceed. Irrelevant and expensive policies should not be bought. Do not make any cash payments. Use a cheque or credit/debit card. Fill in the details of the cheque by yourself and write the name of the company correctly. Insist on getting a receipt.

2. You have an option to get the insurance through online options. This way you may get the same coverage along with genuine discounts. This way you can compare various insurance plans and choose the best suitable option for yourself without falling prey to any biased views. This is the easiest and hassle free option out of all. You do not have to depend upon an agent’s view and the chances of fraud are completely eliminated. Plus this is the safest mode to get the best product. You can download the policy document and reminders shall be sent to you by the insurer when the next premium shall be due.
3. Another significant category is that of the dealers. While buying a car from a dealership, they offer you the option of buying insurance through them. They do this in partnership with insurance providers only. However, this way you end up paying more charges to get a motor insurance cover and hence should be avoided. Remember, there is no compulsion to buy the cover through them. Before you engage yourself in any such contract, go through all the terms. They might come up with some relaxation in premium offers, but that could be a part of their overall promotional sales plan. So you have to study all the aspects of insurance through dealerships, and need to be backed up by some research. Do not blindly depend upon the highlighting taglines of any such offers without understanding the facts behind them.

Thus, opting for an online motor insurance or through an agent should possibly get preference over the one through dealerships. The latter needs a thorough research before it gets shortlisted.

Now since there are few new entrants in the insurance market, the next point for our discussion is whether to go for an established insurer or buy it from a new company.Naturally we want to get it from the most trusted and reputed insurance companies in India. All you need is a fair premium, good coverage and an assured claim settlement.There was a time when the government owned companies played as major players as there were no other private insurance companies allowed to function in this area. After privatisation the major insurers have been a few private companies as well like HDFC ERGO, ICICI Lombard, Reliance, Bajaj Allianz and many others.

Motor insurance companies are reporting growth at 9%. The non life insurance segment in India has created a place for digital players also. At the same time the customers who are loyal and satisfied with their current insurance providers continue to renew their policies with them. The established companies too are making it easy by making everything available at your fingertip, you can visit their websites and get everything done. Global technology companies have come up with their own insurance facilities.

Go Digit General Insurance Limited  and Acko Insurance Limited are the new insurance companies to capture the market. Both the companies started their operations in 2016. Acko is India’s first digital insurer and a fastest growing insurance company. It is a convenient and reasonable motor insurance company with a variety of deals and discounts on premiums. There is no paperwork involved. The tedious task of getting insurance has been made quick and easier by Acko. 

Go Digit Car Insurance offers extensive cover at Higher Insured Declared Value. It has a self-inspection process by simply forwarding the images of your damaged vehicle from your phone. With a 6 months warranty on repairs, the company offers a pick and drop facility for your car. Even for bikes, it has a paperless, smartphone enabled self-inspection facility. A cashless settlement can be made at different Go Digit network service centres with a six months warranty of repair.

Among the traditional companies, IFFCO Tokio General Insurance, Royal Sundaram General Insurance, The Oriental Insurance company, HDFC ERGO General Insurance, Universal Sompo General Insurance, Tata AIG General Insurance, The New India Assurance, SBI General Insurance etc are among the top companies with the highest Motor OD Claim settlement ratios. Here is a comparison of traditional insurance with new age insurance.

• Costwise traditional insurance is expensive. Newly emerged insurance companies offer cost-effective policies.

• The feeling that traditional insurance gives is the same as getting a new asset. Whereas in the case of the new-age insurance it feels like buying something super light.
• The traditional insurance policies are cumbersome to read and understand. They are lengthy too. The new insurance providers offer easy to understand and friendly material.
• The paperwork involved is also complex in the case of the former and is also less convenient. As compared to the traditional way, the new-age insurers make the process very smooth, quick and minimal.
• The most important part is claim settlement. It takes a lot of time to process a claim, when it comes to a regular insurance plan taken from an established company. The new companies make it hassle-free and quick.

Digital transformation has given far better techniques like telematics which are used to better understand the driving behaviour of the owners/drivers these days. Technology has changed the entire process. Digital ways are very much customer friendly with round the clock support and faster communication via smart phones and emails. All the new entrants follow unconventional ways and that’s something perhaps making them more popular.

We can conclude that buying motor insurance surely needs some research and clarification of the matters which you find difficult to understand. Read the particulars of the policy which you are planning to buy and specifically pay attention to the inclusion and exclusions of the policy. All the terms of the policy should be known to you and merely because someone like an agent or a family member recommends it to you should not compel you to arrive at a particular decision. 

Photo by Erik Mclean on Unsplash

Finvestor Social Media

Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

See Full Bio