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In today’s economy, it is crucial that all our assets are safeguarded. In the world of automobiles, this statement holds a lot of merit. Accidents involving automobiles can lead to a lot of damage to property and life. Hence, it is important that you must get your vehicle insured as soon as it is purchased.
To get vehicle insurance, one must have ample knowledge regarding insurance policies beforehand to make a well-informed decision. However, oftentimes we come across certain insurance terms that we don’t quite understand, that may make it difficult for us to go through the insurance process. So are you confused about vehicle insurance terms? Don’t worry, we have got you covered. In this article, we explain some basic terms that must be a part of your auto insurance vocabulary.
Basic Auto Insurance Terms You Should Know
1) IDV (Insured Declared Value)
Insured Declared Value, or IDV, is defined as the maximum amount, or “sum insured”, that is fixed by your insurance provider that is payable to the insurer in case the vehicle gets into an accident or is stolen. This is the maximum amount that the insurer can claim, and is fixed at the beginning of each policy period. IDV is calculated taking into account the selling price of the vehicle, the vehicle’s depreciation cost (on the basis of the vehicle’s age), any additional accessories that may be a part of the vehicle and the depreciation cost of the same. The general formula for IDV calculation is as follows:
IDV = [Manufacturer’s listed selling price – depreciation value for the vehicle] + [Cost of additional accessories (if applicable) – depreciation value of the accessories (if applicable)]
2) Own Damage (OD) Cover
An Own Damage (OD) cover entitles you to insurance only for your vehicle. It does not include any damages that may be experienced by a third party involved in the accident. In the event that your vehicle gets into an accident, is stolen or falls prey to natural disasters such as fire, earthquakes, landslides, etc., an OD cover will ensure that you get compensated for the same. It will make you eligible to get reimbursed for all expenses that you may incur for the vehicle repairing or replacement of parts.
3) Third-Party Coverage Insurance
A Third-Party insurance is a statutory requirement under the Motor Vehicles Act, applicable for private as well as commercial vehicle insurance. In this type of cover, also known as the “Act Only” cover, insurance coverage is provided for the third party that is involved in the accident only, instead of the insurer. The policy is tasked with covering all legal liabilities that may be incurred by the third party in terms of death, disability and/or damage to any third party property.
4) Comprehensive Insurance
A comprehensive insurance policy is an all inclusive auto insurance policy wherein protection is provided for all entities involved in the accident, namely the insurer as well as the third party. It bears all legal expenses, repair costs and damages for the insurer’s vehicle, and for the third party vehicle involved. This is the maximum level of coverage that you can get in vehicle insurance.
5) No Claim Bonus (NCB)
A No Claim Bonus, or NCB, is an additional benefit that is provided by your insurance provider. Under this, at the time of vehicle insurance renewal, the insurer can enjoy this bonus if they have not made any claims for Own Damage covers during the tenure of the policy. NCB is calculated in terms of percentage, and entitles the insurer to pay lower premium on renewing the policy, depending on the NCB slab they fall into. Typically, a No Claim Bonus falls within a 20% to 50% range.
6) Cashless Claim
While getting their vehicle insured, the insurer can opt for a cashless claim process. In this process, the insurer must get their vehicle repaired in the insurance provider’s network of garages. Once the accidental repairs are complete, the insurance provider takes care of the payment directly with the garage. In case there are some excess repairs that are carried out beyond what the policy covers, the insurer needs to cover that amount themselves.
7) Personal Accident Cover
A Personal Accident Cover (PAC) is a mandatory cover that needs to be taken while getting a motor insurance policy. This cover provides protection to the driver of the vehicle insured while driving, mounting or disembarking from the vehicle. Insurers can also opt for an optional PAC for other passengers in the vehicle.
8) NIL Depreciation
Depreciation costs of the vehicle are taken into account while making a claim settlement, which can lead to the insurer getting a drastically lesser claim amount. By getting an add-on cover known as the NIL Depreciation cover, insurers can get compensated for the depreciation cost of their vehicle, and would not have to bear the loss incurred due to depreciation of vehicle parts. Tyres and tubes are the only parts that are not compensated for in this cover.
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