Whether you own a two-wheeler or a four-wheeler, motor insurance renewal is often influenced by pricing considerations, especially as the vehicle's age increases. However, with auto parts and repair costs increasing by the day, it is important to ensure that the purchased motor insurance policy covers all types of damage and other risks involved. Understanding all aspects of motor insurance renewal and how certain additional covers can reduce the insured's liability for a marginal increase in premium amount is thus imperative.
All vehicles plying on Indian roads must compulsorily have third-party (TP) insurance as mandated by the Motor Vehicles Act, 1988. Failing in this may lead to penalties or imprisonment for the vehicle owner as per the respective state laws. Thus, it is important to renew TP motor insurance before the end of the policy period. Own-damage (OD) cover protects vehicle owners against any liabilities arising from damage to their own vehicles. Ensuring renewal of OD cover on time is equally important to getting protection for any unforeseen events.
The Insured Declared Value (IDV), popularly known as the sum insured, is possibly the most important element of any motor insurance policy, and it basically states the maximum value to be reimbursed by an insurer in the event of extensive vehicle damage, or if it is stolen. In many cases, owners tend to opt for a lower IDV to reduce the total premium for the insured period. However, doing so increases the owner’s liability and results in less reimbursement in the event of total loss or theft. While the IDV is fixed based on the manufacturer’s listed selling price, an assessment is usually done for vehicles older than five years by the insurance company and a mutually agreed IDV is arrived at based on the vehicle's condition.
During the purchase of a new vehicle, most vehicle owners choose add-on covers such as engine covers, key protectors, tyre and rim covers, zero depreciation covers, and return to invoice (RTI) covers.These covers offer additional coverage over the base policy and significantly reduce the vehicle owner's liability amount in case of key theft, highway tyre bursts or even flood related damages. However, as the vehicle's age increases, owners often opt out of such add-on covers in order to reduce the OD premium. This may seem prudent, but any unexpected incident involving the vehicle can lead to financial loss of a magnitude much higher than the premium amount saved.
For vehicles where no insurance claims have been made in the previous years, the insurance company offers a no-claim bonus (NCB) through which a discount of up to 50 per cent on the OD premium can be availed. The NCB is also transferrable in case the owner decides to switch between insurance companies. While it is recommended to opt for NCB during the claim-free years, it is advisable to ensure that the vehicle is actually devoid of any external deformations since old damages are not covered in the future.
Additionally, owners have the option to opt for the Voluntary Deductible feature wherein a small amount, ranging from Rs 1,000 to Rs 2,000, is deducted from the insurer’s liability for any claim made in the insured period. Opting for this feature reduces the premium amount of the motor insurance policy and is recommended for vehicles that are used sparingly or are older than five years.
Vehicle owners should review the actual coverage of their existing motor insurance policy and select additional coverage when renewing. As the vehicle ages, the IDV reduces while repair costs increase in comparison with the vehicle's residual value. Add-on covers like zero depreciation and return to invoice are usually offered up to a limited vehicle age, and vehicle owners would do well to opt for insurance companies that provide these covers over a longer duration.
A well-insured vehicle offers complete peace of mind and may also command a higher resale value, especially for high-end motorcycles or luxury cars. In summary, it is always recommended that vehicle owners weigh all the above aspects when renewing their motor insurance policies and not merely consider the price quotient.
The author is CEO of Reliance General Insurance Company Ltd.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
