Car/Bike Insurance

Is motor car insurance compulsory in India?

Under the provisions of Motor Vehicles Act all the vehicles which are plying in public places shall have at insurance policy at least to cover third party liability as specified under the Act.

What type of policies are available for motor vehicles?

There are two types of policies available for motor vehicles – third party insurance -policy A and comprehensive insurance policy- policy B.

What is the difference between these two policies?

Third party insurance policy covers only the inter-alia liability of the vehicle owner for loss or damage to life or property of the third parties whereas comprehensive insurance policy covers in addition to third party liability, loss or damage to the vehicle itself byway of accident, theft, etc and specified perils.

Whether the insurance premiums are same or different amongst four Indian companies?

The premium rates for motor vehicle insurance in India are governed by Tariffs which is same for all the companies operating in India.

For what value the car is to be insured – Depreciated value or reinstatement value?

The car is neither to be insured for reinstatement value nor for depreciated value. It is to be insured for second-hand value in the local market for a similar type of car for a similar model. In the event of loss, the liability of insurance company is the maximum compared to the market value or the amount of insurance whichever is less.

What factors influence the premium for a car insurance?

The cubic capacity, use of car, normal area of operation and the value of car proposed for insurance decide the premium payable and also various extensions opted for.

How much would the insurance company pay in the event of an accident?

In case of an accident, the insurance company pays for cost of damaged parts which are replace and the labour cost to repair the vehicle. As per the revised regulations, depreciation is not deducted from the cost of the parts except for the tyres and tubes for which 50 percent depreciation is deducted.

What is Bonus/ Malus system?

In case of any accident occurring in a year for which a claim is lodged on insurance company, in the very next year, the insurance company loads the premium by way of charging a malus- a percentage of extra premium. Whereas when there is no claim lodged during the year the insurance company grants a discount in the premium by way of bonus.

What are the minimum/ maximum percentages of the Bonus/Malus?

The minimum Bonus is 20 percent, maximum is 65 percent whereas minimum Malus is 105 percent and maximum is 50 percent.

On sale and transfer of vehicle, what happens to the Bonus/Malus?

The Bonus/Malus goes with the original owner since he can claim bonus on his next purchased vehicle. However the purchaser enjoys the bonus under seller’s policy till the renewal date. On date of renewal, the bonus/malus has to start afresh.

What is voluntary excess?

Voluntary excess is client’s option to opt for bearing a certain amount of loss from every claim. For this option, insurance company allows a discount in premium.
How is voluntary excess different from compulsory excess?

In case of voluntary excess, it is the client’s option for which he gets discount in premium whereas compulsory excess is imposed by the insurance company in addition to Malus to take care of a bad claim experience for a particular car. For compulsory excess, no discount in the premium is allowed.

What are the categories of vehicles that are covered by a Motor Insurance Policy?

For the purpose of insurance, motor vehicles are divided into three classes:

Private cars:
This category comprises of cars, including station wagons, used for social, domestic, business or professional purposes (excluding those used for the carriage of goods other than samples)

Motor Cycles: This includes motorcycles with or without sidecars, pedal cycles, mechanically assisted pedal cycles and motor scooters with or without sidecars

Commercial Vehicles: All vehicles excluding private cars, motor cycles and vehicles running on rails come under this category

What are the different types of covers that are granted under Motor Insurance?

There are two types of insurance cover for each class of vehicles:

“A” Policy:

This covers the insured’s liability to third parties for death and bodily injury caused by an accident involving the motor vehicle. This refers to the minimum risks that are to be covered under the Motor Vehicles Act 1938 (Act Liability).

“B” Policy:

Is wider in scope and covers not only accidental damage to the insured’s own vehicle, but also liability to third parties for bodily injury and / or property damage caused as a result of an accident involving the insured vehicles (Own Damage Losses and Act Liability). The policy can also be extended to cover additional liabilities (as provided in the Tariff)

What briefly is the risk covered under the Own Damage Policy?

The insurance company will indemnify the insured persons against loss or damage caused to the insured vehicle by any of the following:

fire, explosion, self ignition or lightning
burglary, housebreaking or theft
riot and strike
earthquake (fire and shock damage)
flood, typhoon, hurricane, storm, tempest, inundation, cyclone, hailstorm, frost,
accidental external means
malicious act
while in transit by road, rail, inland waterway, lift, elevator or air
land or rockslide

NOTE: The basic rate for premium calculation is a comprehensive rate covering all the above-mentioned risks. If you do not want a cover for earthquake (for instance if you don’t live in an earthquake prone area), flood and / or riot and strike, you would be given a discount of 0.10 percent of “Insured’s Estimated Value” for exclusion of earthquake and 0.15 percent of the same for exclusion of flood and for riot and strike respectively.

What are the risks covered under Third Party Policy ?

The insurance company covers any amount which is legally required to be paid by the insured person, to third parties on account of their death, bodily injury or damage to their property arising out of the use of the insured car. The insurance company also indemnifies the legal costs and expenses incurred by the claimant, if the insured becomes legally liable to pay them.

The insurance company will further indemnify any legal liability payable by the insured to the occupants in the car (insured vehicle) provided they are not carried for hire or reward and are not employees / family members of insured. The indemnity under this policy is available to any driver who is driving the car if he has been permitted to do so by the insured and provided such driver does not have any other similar cover.

What extension of cover can be obtained with regard to private car?

The following are the prominent extra risks that can be covered in addition to the standard cover:

Personal accident of insured, spouse and unnamed passengers
Legal liability of the employees of the insured
Wider Legal Liability to Drivers
How is the premium charged under motor insurance ?

The premium in a Motor Insurance Policy is regulated by the India Motor Tariffs, operating in the Madras, Bombay, Delhi and Calcutta Regions. For private cars, the rating considerations are:

Cubic Capacity of the Insured Vehicle
Insured’s estimate of the full value of the vehicle and zone in which the vehicle operates (The premium will also vary depending on whether an ‘A Policy’ or a ‘B Policy’ is purchased)

What are the circumstances under which discounts are offered in premium ?

The following are the significant circumstances under which a discount is offered on the amount of premium to be paid:

Where the insured is prepared to bear a fixed amount in respect of every claim for damages to the vehicle
A discount commonly referred to as bonus is allowed on the premium when no claims are made against the policy during the relevant previous year

Note:
Loading called malus is otherwise charged on the premium if the insured has made a claim during the relevant previous year

A 5 percent discount is allowed if the insured is a member of a recognised Automobile Association (the amount of discount will not exceed Rs.100/- for private cars)

What is the significance of a certificate of Insurance?

The Certificate of Insurance issued by the insurers in relation to every vehicle is the only evidence acceptable to the police authorities to show that valid insurance exists. This document has to be produced when demanded by an authorised police officer.
The Certificate of Insurance cannot be backdated. Hence, if a Policy is not renewed on or before the expiry date, the Certificate of Insurance in respect of new Insurance will be effective only from the date of New Insurance. For every renewal, a fresh certificate must be obtained. If there is any alternation in the risk during the currency of the insurance, the old certificate should be surrendered and a fresh one to be obtained. Duplicate Certificate in lieu of defaced, mutilated or lost certificates can be obtained on payment of prescribed fee and after production of an affidavit to that effect.

What is expected of the insured in the event of an accident involving damage to the vehicle and/or injury to third party ?

Damage to the Vehicle:

When an accident takes place, a report should be immediately filed with the insurance company and a set of claim forms submitted to them. An estimate for repairs and/or replacements has also to be prepared and submitted. The insurance company may then appoint an independent Surveyor who will also value the damage and hold discussions with the repairers and arrive at the amount at which the claim will be settled.

On completion of the survey, the repair work can be undertaken. When the relevant bills are produced, settlement will be made under the Policy. The claim amount may be paid either directly to the repairer or to the Insured if the latter has already made payment to the repairer and holds proof of the same.

In case of settlement of claim either for total loss of the vehicle or for replacement of certain items, such damaged vehicle or parts belong to the insurance company. They may arrange for disposal of the same in the best manner possible.

Death or Injury to Third Party:

The moment an accident takes place and a third party is involved, a report should be immediately filed with the police. Simultaneously, notice should be sent to the Insurance Company.

No settlement should be made with the third parties for any compensation to the latter and no commitment should be entered into with regard to the Insured’s liability with the third parties.

All dealings with the third parties will be only with the knowledge and approval of the Insurance Company. Any claim from third parties will have to be suitably defended in consultation with the Insurance company and expenses for such defence will be payable by the insurance company if incurred with their consent.

Can Motor Insurance Policies be taken for a shorter term than the normal period of one year?

Motor Insurance Policies are normally taken for a period of one year. However, according to the requirements of the vehicle owner, a policy for a shorter term can be issued.

Situations do arise when a person plans to sell off his vehicle within a couple of months and he does not intend to renew his policy for another year. In such circumstances, he may go for a shorter period of cover. Short period insurance attracts Short Period Scale for calculating premium and obviously comes out costlier than the pro rata for the said period.

Short Period Scale

Period Not Exceeding Rate
1 week 10 percent of annual rate
1 month 25 percent of annual rate
2 months 35 percent of annual rate
3 months 50 percent of annual rate
4 months 60 percent of annual rate
6 months 75 percent of annual rate
8 months 85 percent of annual rate
Exceeding 8 months Full Annual Premium

Can Motor Policies be issued for a longer term than a year?

No policy can be issued for a period of more than one year ordinarily. However, for motor cycles and scooters only, the Act Policy in Form A, which is the minimum compulsory insurance required by law, may be issued on a long term basis. Such policies once issued remain valid up to the cancellation of the registration of the vehicle by the Regional Transport Authority (R T A).

This insurance is particularly useful for owners of comparatively older vehicles, for whom the Comprehensive Cover becomes a little too expensive considering the age and market value of the vehicle. The premium for such insurance is charged in accordance with the Long Term Act Policy Premium Schedule.

Long Term Act Policy Premium Schedule For Two-Wheelers Only

Age of Vehicle Below 250 cc Above 250 cc
New up to One Year 1103 1380
Between 1 to 2 Years 1060 1326
Between 2 & 3 Years 1012 1267
Between 3 & 4 Years 961 1202
Between 4 & 5 Years 908 1134
Between 5 & 6 Years 868 1063
Between 6 & 7 Years 789 987
Between 7 & 8 Years 724 905
Between 8 & 9 Years 653 817
Between 9 & 10 Years 577 721
Over 10 Years 498 622

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