9 Common Car/Auto/Vehicle Insurance Myths Busted
Insurance is looked down in most of the developed countries as a tool to loot the common people. Most of the uneducated people think of insurance as a product which benefits only the insurance company agents and not themselves, while the educated people are also having almost the same opinion on the insurance. This was due to the lack of awareness among the people on the insurance products. The insurance penetration in India was 3.7 % of the Gross Domestic Product (GDP) for the year 2020, while that of the World’s average was 6.31%. Higher the awareness, higher would the penetration of insurance in India.
While the Third party car insurance is mandatory for every vehicle to ply on public roads, most of the people still do not have clear understanding of the coverage offered by their car insurance policy. It is the responsibility of the customer to understand the type of coverage needed for his/her vehicle before taking the auto insurance or motor insurance from the insurance company. Due to the advancement in technology there are many ways for customers to understand the insurance products and increase the awareness levels. It is advisable on the part of the customer to increase the insurance awareness to prevent the agents from cheating them. Let us know the 9 common car/auto/motor/vehicle insurance myths which are busted with an explanation:
Myth : Cheap is Best
Fact: Fewer premiums doesn’t necessarily mean required coverage
There is a misconception among the people that the insurance cover should be selected if the price is less compared to that of the competitors. This may not always be true as most of the insurance companies charge almost same premium for the same type of coverage. The premium rates for third party are decided by the IRDA while the Own damage premium rates are fixed by the insurance companies within the limit set by the IRDA. Most of the insurance companies charge same premium for the car depending on the age, make model, cubic capacity and other factors. If you are comparing premiums of different insurance companies for your car insurance and you find that a particular insurance company is offering way less premium compared to the other insurance companies, then it is important to check the coverage and other terms & conditions under that insurance policy.
The premium of your car insurance depends on the below factors and is subject to change with the additional coverage opted:
- Age of the car decides the premium, as the car ages the Insured Declared Value or IDV decreases and so the premium decreases. A nominal of 10% depreciation is taken for each year while calculating your car insurance premium.
- Make & Model of your car also decides the premium to be paid. For example Maruti cars cost you less premium while the Hyundai cars cost you a bit higher premium. This is due to the cost of parts at the time of replacement, the Models which incur high cost are charged heavy premium.
- Cubic capacity is the capacity of your car. For the calculation of premium the cars are divided into 3 sections: Up to 1000cc, More than 1000cc and less than 1500cc, More than 1500cc. The third party premium remains constant while the own damage premium for each section varies from company to company.
- Insured Declared Value is the maximum liability of the insurance company in case of any claim. Higher the IDV, higher would be the premium of your car insurance. It is important to strike a balance between the IDV and the premium. Too high IDV would increase your premium while too less IDV could reduce the coverage on your car.
Myth: Third Party cover is enough if there is no claim
Fact: This time there might be Own damage claim.
There is a common misconception among the people that if there is no claim after taking insurance policy, then the premium paid was lost without any gain. Due to this thinking most of the people from the developing countries try to avoid taking insurance after the 1st year and drive their cars without a valid third party insurance policy. To counter this issue, Honorable Supreme Court has asked the insurance companies to offer long term third party insurance to the new cars.
There are many people who spend hefty amount on insurance policy and if there is no claim consecutively for 2-3 years, they prefer opting for only Third party insurance or cheap insurance policy without bothering the coverage offered. If the own damage claim occurs after taking only third party insurance, then the burden of repair lies solely on the insured customer and the insurance company cannot pay any claim. If the vehicle is below 10 years of age and maintained in good condition then it is advisable for the customer to take Comprehensive insurance after 7 years of vehicle age. Up to 7 years it is advisable to take Bumper to Bumper add-on along with the comprehensive insurance as the cost of depreciation has to be borne by the insured at the time of claim without a valid bumper to bumper add-on cover.
One has to pay due diligence at the time of deciding the insurance cover required for his/her car as the midterm addition of add-ons may not be permitted by few insurance companies and in no case you can opt for extra coverage before claim settlement. In case the vehicle is insured only for third party and there is an own damage claim, if you take own damage insurance policy immediately after the claim, the coverage would be applicable to future claims and not the existing or past claims.
Myth: Renewal can be done after expiry.
Fact: Break-in period claims are not covered.
There are a certain section of people who wait till the eleventh hour to renew their car insurance and in some case people wait till the expiry of their previous insurance to renew the car insurance policy. If the car insurance is expired then the insurance companies will ask for inspection to be done before accepting the risk. This is done by the insurance companies to ascertain the risk proposed by the customer, depending on the quantum of risk insurance companies decide on the acceptance of proposal.
There is a concept of No claim bonus in your vehicle insurance policy which is valid for 90 days from the date of expiry of your previous policy. This NCB discount is valid only if the motor insurance policy is renewed within 90 days from the date of expiry of the previous insurance policy. One important thing to note here is once the insurance policy is expired, customer is at the risk of third party claims on his own. Without a valid third party car insurance policy, insured would be made liable for any claim resulting out of a third party case. To prevent this it is advisable to renew your motor insurance policy before the expiry or on the date of expiry.
The biggest risk in renewing your car insurance policy after expiry is the risk of getting it rejected by your existing insurance company. Let us assume that there are few dents and damages to your car which you have not claimed in your previous policy term, after the expiry of your policy inspection will be carried out and the insurance company would come to know the condition of your car. There might be a chance that the insurance company would reject your request for insurance as there are damages which may be claimed anytime under the new insurance policy. This is the kind of risk most of the insurance companies would not be willing to accept as there is good chance of claim occurring. If you renew your car insurance after the expiry of previous policy, then you might be at the risk of paying high premium or facing rejection from insurance companies.
Myth: NCB is lost if u switch Insurer
Fact: NCB can be shifted from one insurer to another
No claim bonus (NCB) is the discount provided by the insurance company on the own damage premium for not registering any claim in the previous policy period. The no claim bonus increases for each claim free year and comes back to zero if there is a claim. There is a common misconception among the people that the NCB will be lost if the insurance company is changed. This is not true as the NCB would be carried with your policy and can be utilised while taking car insurance policy from the new insurance company.
No claim bonus is lost only in the below cases and for any other case no claim bonus can be transferred from one insurer to the other:
- If there is a claim registered in the previous year policy, then the no claim bonus becomes zero and no extra discount for no claim bonus section would be applicable while calculating the own damage premium.
- If the vehicle is transferred from one name to the other, then the no claim bonus would become zero. This is due to the fact that the no claim bonus is associated with the owner and not with the vehicle. For instance if you purchase a vehicle from a third party then the existing no claim bonus would become zero.
The proof of No claim bonus would be the previous policy copy where the No claim bonus percentage would be mentioned and the insurance companies would take it into consideration before issuing the no claim bonus for the renewal.
Myth: Insurance pays for everything
Fact: Depends on the coverage opted
Insurance protects you and your assets from the financial risk. In car insurance your car is protected from financial risk in case of any loss or damage to the car due to any of the insured peril. This means that only the perils or risks mentioned in the policy copy would be covered in case of a claim. Any peril not mentioned in the policy copy would not be covered under your car insurance.
For instance if you have opted from third party insurance, only the third party claims would be covered by your insurance company and any damage to your car would not be covered as it is out of the mentioned coverage. There are certain add-ons or riders offered under your car insurance policy which would increase the coverage in case of a claim. Depreciation amount has to be borne by the customer in case of a claim if the zero depreciation or nil depreciation cover is not opted by the customer at the time of policy purchase. Since the depreciation is not covered under the policy, the same would not be payable by the insurance company.
It is advisable to discuss with your car insurance agent before finalizing the coverage required for your car. There might be different coverage required for different cities and different persons, the coverage would also depend on the premium paying capacity of the insured customer. For more information on the insurance coverage required in different cities please refer to https://www.policybachat.com/articles/car-insurance-in-different-indian-cities which explains the type of coverage required for each Indian city.
Insurance doesn’t cover all the claims unless and until the peril is covered under your car insurance policy. It is recommended to check and decide the coverage required for your car.
Myth: Anyone can drive your car / Vehicle and claim is paid.
Fact: Subject to terms and conditions
It is common to share your car or vehicle with friends and family members and take their vehicle or car for yourself. This practice is good only till the time there is no claim, only a claim is registered then the process of verification starts. It is compulsory to have a valid driving license before driving any vehicle in India, without a valid driving license you are not allowed to drive any vehicle. In case it is found that your friends or family members are driving your vehicle without a valid driving license, then you could be put behind bars for giving your vehicle to minors without valid driving license.
If your friends or family members drive your car and meet with an accident, then the claim would be payable subject to the terms and conditions such as the driver should posses a valid driving license at the time of accident and the insurance policy should be live. If it is found that the driver was under intoxication at the time of accident, then no claim would be paid by the insurance company and the driver would be made liable to settle the compensation to the decease family members by the court along with the jail term.
Your friends and family members can drive your car or vehicle only after having a valid driving license as the claim would be payable by your insurance company.
Myth: Premium should decrease at the time of renewal
Fact: Premium depends on the coverage selected
Premium in car insurance would normally decrease each year due to many factors such as the decrease in the Insured Declared Value due to depreciation, Coverage opted etc. There is no formula to calculate the percentage of decrease each year but the depreciation is taken as 10% year on year for insurance calculation purpose. In most of the cases the premium decreases at the time of renewal due to the decrease in Insured Declared value considering the depreciation of the car or vehicle. It is important to check the coverage offered by the insurance company where the premium is higher when compared to the previous year and proceed with caution.
The premium of your car insurance may increase at the time of renewal due to the following factors:
- Same Insured Declared Value as previous year, if the IDV is not decreased then the premium would remain constant and there would be no reduction in premium at the time of renewal subject to other terms and conditions remaining same.
- Adding riders such as nil depreciation, Consumables, Engine protection cover etc. which were not there in the previous year policy will also increase the premium.
- Claim in previous policy which results in Zero “No Claim Bonus” at the time of renewal. The No claim bonus premium has to be paid extra which would increase the overall premium to be paid.
Myth: My car is Old, so I don’t require insurance
Fact: Insurance is mandatory for any age of the car
There would be a misconception among the people that old cars need not be insured as there would be no claim on the cars. But this is wrong, every car plying in public places needs to be insured for at least third party insurance cover as per the Motor Vehicles act of India. The third party premium is based on the cubic capacity of your car and not on the age, so you can take third party insurance in case your car is old. It is not advisable to drive your car without a valid third party insurance cover as you would be liable for the third party claims.
People usually avoid taking insurance for cars over 15 years of age. If the valid third party insurance is not present at the time of claim, the honorable courts will make you liable to settle the compensation to the family of the deceased in case of third party claims.
It is also important to note that Vintage cars have the high chance of Theft. In case of Vintage cars the Insured Declared value will be decided mutually by the insured and the insurance company. It is of utmost importance to insure your vintage cars due to the sentimental value attached to the vintage cars. Also the spare parts of your vintage cars would not be easily available in the open market.
Insurance is mandatory for every vehicle to ply in public places as per the Motor vehicles act, 1938 without which there could be a fine up to Rs.5000 or up to 3 months of imprisonment or both.
Myth: Claim process is Complex
Fact: Claim is settled on time if you submit everything on time
Insurance is a service industry and the real use of insurance comes only at the time of claim, the standards of any insurance company would be tested only at the time of claim. Few factors such as the time taken to respond to the claim, arranging surveyor to settling the claim after the repair is done decides the reputation of an insurance company. In the olden days each claim would take up to 30 days to get settled due to many factors such as the limited availability of spare parts, late visit of surveyors, many documents to be filled and submitted to the insurance company. But with the advancement of technology the claim process is made simple by the insurance companies.
There are few insurance companies which are settling the claims within a couple of days and are turning as an example to the other insurance companies. The advent of technology has made the claim process almost paperless where the insured needs to fill and submit all the required documents online to the claim department of the insurance company which would in turn process the claim immediately. In case of cashless claims the claim would be settled by the time your vehicle is ready for dispatch after the repair is done. In case of reimbursement claims all the claim related documents have to be submitted to the insurance companies within the stipulated time to fast tract the claim process.
Many people might think that claiming under their insurance policy would reduce the value of their vehicle which is completely false; the market value of the vehicle depends on many factors such as Make model, year of manufacture, running condition of the vehicle, maintenance of the vehicle etc. The Insurance declared value of the vehicle might not always reflect the true value of the vehicle.
Car insurance rates change with the No claim bonus available for your car. Higher the no claim bonus limit, lower would be your car insurance premium rates. It is important to carry on the no claim bonus at the time of renewal without fail to ensure the car insurance premium rate is decreased.
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