Last Updated on 07/10/2022 by Deepak Singla
Whenever you buy insurance, you should read the fine print. Every time you read the fine print while buying car insurance, the jargon will confuse you. As difficult as they may seem, it is important to know and understand them. It will ensure you’re better able to understand the utility of the car insurance you are buying.
If you are looking to buy car insurance online, you may notice these terms written in the description of the car insurance as well. If you don’t know the meaning then you may misunderstand what the insurance company is trying to tell you and you might end up paying for car insurance that you don’t need or which is of no real use. Let us take a look at the commonly used terms.
Terms you should know about
1. Third-Party Liability
In case of an accident, the insured is considered the first party, the insurer is the second party, and the other one involved in the accident is the third party. In case of any damage or loss that is the result of an accident with the car of the insured, the insured is liable for providing financial compensation. This is why according to the Motor Vehicles Act, 1988, it is mandatory for all vehicles to have Third Party Liability insurance.
2. Insured Declared Value (IDV)
IDV or Insured Declared Value is the amount pre-determined by the insurer that the insured will receive in case of damage or loss to their vehicle. IDV is decided on the current market price and then calculated keeping in mind the depreciation. It is one of the factors that affect your premium. A lower IDV will get you a lower premium but when an accident occurs you will get less refund and you will have to shell out more from your pocket.
There are many factors that affect the premium and if you wish to get a quick preview of the premium you are eligible for, you can use the car insurance premium calculator. You need to put in information about your car and it will quickly calculate how much premium you will have to pay based on all the factors. Other factors that affect your premium are vehicle model, age of the car, the city you live in, and so on.
3. Personal Accident cover
Accidents cannot be ruled out while driving on the road, they can be largely due to others or by our own oversight. With more vehicles occupying the roads, the chances of accidents are higher. At the same time, an accident can damage more than just your vehicle. In worst-case scenarios, an accident can cause death or disability for life. If you travel frequently, then it is advisable to seek personal accident cover. It is generally a part of your comprehensive car insurance but sometimes you can purchase it at an extra premium and make it a part of your policy. Be on the lookout for a policy that includes the personal accident cover or gives you the option to buy it for yourself.
4. Comprehensive Policy
If you are looking at options while buying car insurance, you will notice that there are primarily 2 options – third party insurance and comprehensive insurance. The latter is an extensive policy that offers coverage for a number of things. It provides coverage against fires, theft, natural calamities, and provides coverage for the vehicle of the insured as well.
You might also consider getting comprehensive insurance if you own an electric vehicle. Insurance on Tesla and other electric vehicle brands can have comprehensive coverage, which provides payment for perils, such as falling, flying objects, vandalism, and missiles. Like regular vehicles, the insurance rate for electric cars has determining factors, such as the vehicle model, driver’s driving record, claims history, place of residence, and more.
5. Own Damage Policy
This policy was introduced for those who have bought third-party liability insurance for a long time and cannot switch to a comprehensive one before the tenure is up. The own damage policy is built to protect only the vehicle of the insured. You can buy this policy along with your third-party insurance to have a complete package till you can shift to a comprehensive policy.
So, what’s specifically covered under own damage auto insurance policy? It covers your vehicle from unforeseen damage, such as fire, self-ignition, natural calamities, fire, and external explosions. Furthermore, own damage car insurance covers loss or damage due to theft, housebreaking, burglary, and other malicious acts.
6. No claim bonus
When you go for a policy tenure without placing any claims, then you are eligible for a no claim bonus. A certain percentage of your assured amount gets transferred to the following year, and your total assured amount increases at no extra cost! No claim bonus is a perk offered by most insurance companies.
Deductibles are the amount to be borne by the insured in addition to the sum given by the insurance company. Deductibles contribute to the premium as well. If you choose for lesser deductibles, your premium will be higher. However, in this case, when an accident occurs, you will have to pay a lesser amount.
If your vehicle doesn’t cost that much, it’s better to pay a lower deductible. For instance, if your car is worth USD$1,500 and your insurance deductible is USD$1,000, the insurance company will only pay $500 after the deductible. So, paying a higher deductible for high-priced cars is best to maximize car insurance coverage.
8. Voluntary Excess
The two forms of excess are voluntary and compulsory. Compulsory excess is set by the insurance company. On the other hand, voluntary excess is the amount of money you’re willing to pay out of your pocket for a claim.
Voluntary excess is the amount you choose to over and above the deductibles in case of a claim. While buying a car insurance policy, it is essential to note the terms and conditions on excess and deductibles while buying it.
9. Cashless garage
Most car insurance companies have tie-ups with garages that allow car owners to get the repairs and maintenance done without paying any amount. This process is much easier than placing a claim and getting a reimbursement. It’s applicable only in the garages the insurance company has approved.
These terms are important because they define the parameters of the premium you pay and also determine the extent of the utility of your car insurance policy. Understanding these terms is the key to choosing the right option for you and ensuring you get the best deal.