A-Z of Auto Insurance Terminologies
Ever wondered what “deductible” truly means, or why you might need “uninsured motorist” coverage? Fasten your seatbelt, because this A-Z guide is your friendly copilot, ready to navigate the confusing world of auto insurance terms! From A to Z, we’ll unlock each key word, explaining it in clear, everyday language. So, whether you’re a newbie or a seasoned driver, you’ll find valuable information and helpful tips to confidently choose the right coverage and cruise down the road with peace of mind.
Add-on Coverage
Add-on covers, also known as riders, offer additional protection that can be added to a Comprehensive Plan at the time of purchase. These riders are not available for purchase separately or in conjunction with a Third-party Plan. They come in two types: coverage-based and service-based. For instance, the Zero Depreciation Add-on enhances coverage, whereas the Roadside Assistance Add-on offers a service benefit. When selecting Comprehensive Car Insurance, you have the flexibility to include multiple add-ons as per your needs. However, remember that each add-on will increase the overall premium cost. It’s advisable to opt for add-ons that genuinely enhance your coverage.
Here are some examples to showcase the concept of add-on covers or riders in the context of motor insurance:
Zero Depreciation Cover: If your car gets damaged in an accident, standard insurance might not cover the entire repair cost due to depreciation. However, with a Zero Depreciation Add-on, you can get the full cost of repair without any deduction for depreciation.
Roadside Assistance: This add-on provides services like towing, fuel delivery, flat tire change, or battery jump-start if your vehicle breaks down on the road.
Engine Protection Cover: In case of damage to the engine due to flooding or oil leakage, this add-on ensures that the repair or replacement costs are covered.
Personal Accident Cover for Passengers: Apart from the driver, this add-on extends the insurance coverage to passengers in the vehicle, providing compensation in case of accidental injuries or fatalities.
Key Replacement Cover: If you lose your vehicle keys or they get stolen, this add-on will cover the cost of replacing or reprogramming the keys.
Return to Invoice: In the event of total loss or theft of your vehicle, this add-on ensures that you receive the original invoice price of the car rather than its depreciated value.
Consumables Cover: It covers the cost of consumables like engine oil, nuts, bolts, and screws that might need replacement during repairs.
Anti-theft Device
An anti-theft device is a tool that can be added to your vehicle to deter theft. These devices often come equipped with features such as triggering alarms and/or incorporating built-in GPS for tracking purposes. It is advisable to opt for anti-theft devices that have received certification from the Automotive Research Association of India (ARAI).
By installing certified anti-theft devices, you enhance your vehicle’s security, minimizing the likelihood of theft. As the risk of theft decreases, the insurance company’s risk in covering your vehicle is also reduced. This mitigation of risk typically results in a lower premium amount.
For instance, if you install a certified alarm system that immediately alerts authorities in case of unauthorized access, the insurance company may view your vehicle as less prone to theft, leading to a potentially reduced insurance premium.
Auto Insurance
Auto Insurance refers to the protection of your car and/or bike against unforeseen and unpredictable events such as third-party liabilities, accidents, fires, natural and man-made calamities, theft, or total loss. In the insurance industry, it is also termed as motor insurance or auto insurance.
Break-in Policies
Break-in Policies, also referred to as Break-in Insurance, is a term used when a significant gap exists between two insurance policies. In such instances, there’s a possibility that the insurer may require a vehicle inspection before renewing the insurance, potentially resulting in an increased premium. To avoid such situations, it is recommended to renew the policy before its expiration to ensure a seamless transition between policies.
For example, if there is a substantial gap between the expiration of your current insurance policy and the renewal of the next one, the insurance company may want to assess the vehicle’s condition due to the break-in period. This evaluation could lead to a higher premium if the insurer perceives an increased risk.
Additionally, if the gap between policies exceeds 90 days, any accumulated No Claim Bonus may reset to zero, resulting in a higher premium when renewing the plan. Therefore, timely renewal is crucial to maintaining continuous coverage and favorable premium rates.
Compulsory Deductible
In the context of claim settlements, there is a fixed portion that you are required to contribute, known as the Compulsory Deductible amount. This predetermined component is established by the Insurance Regulatory and Development Authority of India(IRDAI) and is based on the cubic capacity(CC) of the vehicle’s engine.
For instance, consider a repair bill of Rs. 12,000. If the Compulsory Deductible for a car with an engine capacity less than 1500 cc is Rs. 1,500, the insurer will cover Rs. 10,500, and you will contribute Rs. 1,500. It’s important to note that for cars with an engine capacity exceeding 1500 cc, the Compulsory Deductible is set at Rs. 2,000. On the other hand, for bikes, the compulsory deductible amount is fixed at Rs. 100.
Comprehensive Coverage
A Comprehensive Coverage combines both Third-party (TP) and Own Damage (OD) protections, often referred to as an OD + TP coverage. While the TP component fulfills legal obligations by covering liabilities to third parties, the OD component safeguards your vehicle against various damages. Additionally, when purchasing or renewing this insurance, you can opt to augment the coverage with additional features known as add-ons.
For example, consider a scenario where your car is involved in an accident with another vehicle. The TP coverage would handle the damages and liabilities related to the other vehicle or any injured parties, ensuring compliance with legal mandates. Meanwhile, the OD coverage would address the repair costs for damages sustained by your own vehicle, such as dents or engine issues. If you’ve opted for specific add-ons, they might further extend benefits like roadside assistance or zero depreciation coverage, enhancing your overall protection.
Cashless Garage
A Cashless Garage, also known as a Partner Garage or Network Garage, is a repair facility with which an insurance company has a collaboration for cashless claim settlements. The primary benefit of utilizing a Cashless Garage is that the insurer directly handles the payment of the car’s repair expenses with the garage.
For instance, suppose your car sustains damage covered by your insurance policy, and you choose to have it repaired at a Cashless Garage. In this case, you won’t need to pay the repair bill out of pocket. Instead, the insurance company, in coordination with the Cashless Garage, takes care of the settlement directly. This not only streamlines the claim process but also provides a convenient and hassle-free experience for the policyholder.
Cashless Claims
In cashless claims, your responsibility is limited to covering charges not included in the insurance company’s coverage, as outlined in the policy terms. For instance, you may be required to pay for deductibles, depreciation, or any additional repairs not encompassed by the policy.
This is due to the fact that cashless garages facilitate the process of Cashless Claims. An alternative to this method is Reimbursement Claims.
For example, let’s say your car undergoes repairs at a cashless garage after an accident. While the insurance company directly settles the majority of the repair bill, you might still be responsible for certain costs, such as a deductible or expenses related to depreciation. These out-of-pocket expenses are what you, as the policyholder, would need to cover in a cashless claim scenario.
On the other hand, in a reimbursement claim, you would initially pay the entire repair bill and then seek reimbursement from the insurance company by submitting the relevant documents.
Consumables
Repairing a car can pose challenges for mechanics, especially when dealing with extensive damages. Based on the intricacies of the repairs, mechanics often utilize various consumable items, such as nuts, bolts, engine oil, lubricants, ball bearings, and screws. These incidental items used during the repair process are referred to as Consumables. Typically, insurance policies do not cover the expenses associated with these consumable items, unless you have opted for a specific Consumables Add-on Cover.
For example, if your car undergoes significant repairs after an accident, the mechanic may need to replace several components like nuts, bolts, and lubricants. Without a Consumables Add-on Cover, you would likely be responsible for covering the costs of these consumable items, in addition to any deductible or depreciation amounts outlined in your insurance policy. However, if you have the Consumables Add-on, the insurance company would include these expenses in the claim settlement, reducing your out-of-pocket costs.
Introduction
The Claim Settlement Ratio (CSR) represents the proportion of claims that an insurer has settled compared to the total number of claims they received within a specific period.
CSR = (Claims settled in a year / Claims received in a year) × 100
This ratio is presented as a percentage and serves as a measure of the insurer’s efficiency in settling claims. A higher CSR often indicates a more reliable track record of claim settlements by the insurer. However, while CSR is a valuable metric, it shouldn’t be the sole criterion when choosing an insurance provider. Factors such as overall customer service, policy coverage, and other services should also be considered.
For example, if an insurer received 1,000 claims in a year and settled 950 of them, the CSR would be 95%. This means they successfully settled 95% of the claims they received, suggesting a high level of reliability in claim settlements.
Engine Protection Cover
The Engine Protection Cover offers additional insurance safeguards specifically for the engine of a car or motorcycle, features that are not included in a standard Comprehensive Cover.
For instance, damages resulting from issues like a hydrostatic lock are specifically addressed and covered by the Engine Protection Cover.
For example, if your car’s engine suffers damage due to water entering the combustion chamber, leading to a hydrostatic lock, a standard Comprehensive Cover might not cover this type of consequential loss.
However, if you have an Engine Protection Cover, the associated repair or replacement costs for such damages would be included in your insurance coverage, ensuring comprehensive protection for your vehicle’s engine.
First Notification of Loss (FNOL)
The First Notification of Loss (FNOL) refers to the initial communication you have with your insurance company regarding your vehicle’s damage or an accident. It is crucial to report the incident promptly, ideally on the very day it occurs, to prevent potential claim denial due to delayed notification.
For example, if your car is involved in a minor accident or sustains damage from an unforeseen event, such as a hailstorm, it’s essential to contact your insurance provider as soon as possible to initiate the FNOL process. By promptly notifying the insurer, you ensure that your claim is processed efficiently and minimize the risk of it being rejected due to late reporting.
Insured
As car and bike insurance typically applies to the vehicle itself rather than the individual driving it, the term ‘insured‘ commonly refers to the vehicle. For instance, the Comprehensive Car Insurance Policy provides coverage for damages inflicted upon the insured vehicle as a result of natural calamities.
However, in specific scenarios, the term ‘insured‘ may also refer to the person who owns or drives the vehicle. Therefore, the interpretation and significance of the term can vary based on context.
For example, in the event of an accident, the term ‘insured’ might encompass both the vehicle and the driver/owner.
Insurer
The term ‘insurer‘ refers to the company that provides or has provided your auto insurance policy. For instance, if you obtain car insurance through www.abc.com, then ABC is identified as the insurer. It’s important to note that individuals or intermediaries selling the policy are not considered insurers.
To be recognized as an official insurer, an organization must meet the criteria set by the Insurance Regulatory and Development Authority of India (IRDAI). Therefore, it’s advisable to ensure that you are securing your auto insurance from a recognized and certified insurer before making a purchase or renewal.
For example, if you’re considering purchasing car insurance from a particular provider, you should verify that they are certified by the IRDAI. This certification ensures that the insurer meets the established standards and regulations, offering you a reliable and compliant insurance policy.
Insured Declared Value (IDV)
In auto insurance terminology, the term ‘insured‘ specifically refers to the vehicle itself. The Insured Declared Value (IDV) represents the predetermined value of the car or bike to be insured, serving as an estimate of its current market worth after factoring in depreciation. It’s essential to distinguish this from the vehicle’s potential resale value.
Under a Comprehensive Auto Insurance Policy, the IDV determines the maximum amount payable by the insurer in the event of total loss or theft of the insured vehicle.
For instance, if you choose to purchase a Comprehensive Plan, you’ll have the flexibility to select an IDV within a specified range.
The selected IDV directly influences both the insured sum and the premium cost for the policy. Opting for a lower IDV results in a reduced premium, but it also means a potentially lesser claim amount if the vehicle is entirely damaged or stolen. Conversely, a higher IDV will increase the premium but offers a greater claim payout.
It’s important to note that the Insured Declared Value is not applicable in the context of Third-party Vehicle Insurance, as it specifically pertains to Comprehensive coverage.
Incurred Claims Ratio
The Incurred Claim Ratio represents the relationship between an insurance company’s net claims and the net premiums it has earned. This ratio, expressed as a percentage, serves as an indicator of the insurer’s financial stability and performance.
To determine the Incurred Claim Ratio, you can use the following formula:
Incurred Claim Ratio = ( Net claims / Net premium) ×100
For example, if an insurance company has incurred net claims amounting to Rs. 50 crores and earned net premiums of Rs. 200 crores in a given period, the Incurred Claim Ratio would be 25%.
This means that for every 100 rupees earned as net premium, the insurer has paid out 25 rupees as net claims, providing insights into their claims management and financial viability.
Legal Liability
Legal liability arises when you are obligated by law to provide compensation to others due to actions related to your insured vehicle, such as a car or bike.
For instance, if your vehicle veers off course and causes damage to a roadside store, you are legally responsible for compensating the store owner for the resulting damages.
This type of obligation is addressed and covered under a Third-party Liability insurance policy.
No Claim Bonus (NCB)
The No Claim Bonus (NCB) is a reward system designed to incentivize safe driving habits and the avoidance of insurance claims. Insurance providers offer a discount on policy renewals if you refrain from making any claims during the coverage period. This discount can be substantial, potentially reaching up to 50% after five consecutive claim-free years.
However, if you do file a claim, your NCB entitlement resets to zero, and you’ll need to build it up again over time. Additionally, the NCB discount can be forfeited if there’s a gap of more than 90 days between your policy’s expiration and its renewal. It’s important to note that this discount applies specifically to the Own Damage portion of a Comprehensive Auto Insurance Policy.
Own Damage (OD) Cover
The Own Damage (OD) Cover provides protection for your vehicle against various types of harm, including accidents, fires, natural disasters, and man-made incidents. Additionally, it offers coverage in the unfortunate event of vehicle theft. The term ‘Own Damage’ specifically denotes harm inflicted upon your insured vehicle, not someone else’s.
For instance, when a policy states that it includes Comprehensive Car and Bike Insurance with an Own Damage Cover, it signifies that if your vehicle suffers damage due to scenarios such as collisions, floods, or other specified events outlined in the Policy Wordings, the insurer will cover the repair costs in accordance with the terms and conditions of the policy.
Outstation Emergency Add-on Cover
This supplementary feature proves beneficial, especially when you’re on a journey away from home. With this add-on in place, the insurance company offers a predetermined sum if your vehicle experiences an accident, mechanical failure, or becomes stationary beyond 100 kilometers from your home base.
For example, imagine you’re on a road trip and your car breaks down 150 kilometers away from your residence. With this add-on, your insurance would provide financial assistance to help cover the costs associated with the breakdown, ensuring you’re not left stranded far from home.
Policyholder
Any individual who opts to buy a auto insurance (or any insurance) are known as policyholder.
Policy Document
The documentation you get from the insurance company after paying your auto insurance premium is referred to as the insurance policy document. It provides information about the policyholder, details of the coverage, duration, and a comprehensive breakdown of the premium amount. Commonly known as car or bike insurance papers, this is the documentation you should present to traffic police if they request proof of insurance. It can be in physical form, digital form or via digilocker.
Policy Period / Tenure
The policy period, also known as the policy duration or tenure, indicates the validity of your auto insurance policy. Your policy document will clearly state the starting and expiry dates, defining this period. It’s essential to renew your auto insurance before the policy period expires to maintain uninterrupted coverage and avoid traffic challans.
Premium
The premium represents the sum you provide to acquire an insurance policy, paid directly to the insurance provider. The specific premium amount varies based on the coverage options you select.
Personal Accident Cover
A Personal Accident Cover provides insurance protection in the event of permanent disabilities or the death of the vehicle owner while operating the insured vehicle, with coverage extending up to Rs. 15 lakhs.
For example, if an individual suffers permanent limb loss in a car accident, they would receive financial compensation in accordance with the terms and conditions of the Personal Accident Cover.
Starting from January 1, 2019, the Personal Accident Cover has been separated from other components. This implies that if you already possess this coverage, there is no need to acquire it again.
For instance, if you’ve owned a car for several years and have a Personal Accident Cover within the car’s insurance plan, there’s no requirement to purchase a new plan when insuring a second vehicle.
Proof of Loss
Typically, when filing a claim, you need to provide evidence of the incurred loss. For claims related to vehicle theft, the insurance company may request a First Information Report and/or a Non-Traceable Certificate from RTO or traffic Police of the respective area as documentation to validate the loss.
Roadside Assistance Cover
This add on feature ensures that the insurance provider coordinates emergency assistance services in case of a breakdown during your journey. The insurer will dispatch a mechanic for immediate repairs at the location. If on-the-spot repair is not feasible, towing assistance will be arranged.
Reimbursement Claims
For Reimbursement Claims, you initially pay the repair expenses to the garage and later seek reimbursement from the insurer. To process your claim, you need to provide the repair invoices and additional required documents. This method can be more cumbersome and time-consuming compared to the streamlined process of Cashless Claims.
Return to Invoice Cover
The Return to Invoice Cover is an add on feature activated when a vehicle experiences a total loss. With this coverage, you’re compensated based on the car’s original invoice price rather than its Insured Declared Value (IDV), hence the name “Return to Invoice.” Typically, a car’s invoice value surpasses its IDV.
Third-party (TP) Auto Insurance
This insurance coverage is referred to by various names: Third-party Insurance, Third-party Liability Auto Insurance, Mandatory Insurance, Liability-only Insurance, and Third-party Policy. It’s a compulsory coverage mandated by The Motor Vehicles Act. Operating a vehicle without an active Third-party (TP) insurance is against the law and can result in fines, legal complications, and potential imprisonment.
The TP insurance safeguards you from liabilities arising if your vehicle causes harm to someone or damages their property.
For instance, if you accidentally hit a pedestrian or damage a nearby store due to a loss of control, you’re responsible for compensating them for their injuries or losses. However, with the TP coverage, the insurance company handles these liabilities on your behalf. Additionally, this coverage extends to compensate for any fatalities resulting from such accidents.
Zero Depreciation Cover
This add on cover eliminates the deduction for depreciation when processing claims. Depreciation refers to the decline in value of vehicle components over time due to natural wear and tear. Typically, when replacing these worn-out parts, their reduced value due to depreciation is factored in to determine the claim payout. However, with the Zero Depreciation Add-on, this deduction is waived.
For instance, if a car’s bumper, which has depreciated in value over time, gets damaged in an accident, a standard auto insurance policy might offer a claim amount considering its depreciated value. But with the Zero Depreciation Add-on, you’d receive the full cost of replacing the bumper without any deduction for its depreciated value.
Conclusion
Wow that was really hectic and mind boggling. Now that you’ve aware with the essential auto insurance terminologies, it’s time to put your knowledge into action. Compare quotes from different insurers, carefully assess your coverage needs, and select the plan that best suits your budget and driving habits. Remember, the right insurance policy is an investment in your peace of mind and financial security. Share this article with your friends, family, and fellow drivers to help them learn about the world of auto insurance, stock market, mutual fund and much more .