Generally, people opt for motor insurance for car or two-wheeler mainly because it is required by law. Under Section 146 of the Motor Vehicles Act 1988, no one can drive a vehicle without proper insurance. This law especially defines the need to insure against the risk of third parties, that is, any act that causes damage to the life or property of other people. Therefore, we only have liability policies (third party) and joint or comprehensive policies that cover the risk of the own vehicle.
The law does not impose any insurance obligation on the person or the vehicle as it is considered affected to the individual, while the third party deals with the possibility of any damage to the public and/or their property. Comprehensive plans include multiple options that cover various risks that would otherwise cost the homeowner should those risks occur.
Most vehicle owners would look for a bargain and check the insurance price, ignoring or not looking closely at the trade-off. The price of the insurance becomes a more important factor when comparing between insurers, however, it is necessary to take into account the structure, characteristics and compensation of each of the parameters.
The IDV (Insured Declared Value) is the most critical factor that decides the premium. This is the maximum amount an insurance company agrees to pay in the event of damage/total loss or theft of a vehicle. So, while looking for a cheaper premium, one should look at the IDV as a reduced IDV would result in a lower premium but also lead to loss for the owner in case of risk.
Of course, a vehicle’s IDV is derived from the age, make and type of the vehicle. The older the age, the lower the IDV, as the value of the vehicle decreases over time. Although, the insurance company usually carries out an assessment of the vehicle to arrive at the correct IDV, broadly speaking, there is a specified range that each insurer uses to provide cover. So, not that one could always raise or argue for a higher IDV, but it is better to keep the IDV in mind while evaluating premium offers.
Zero Depreciation – Depreciation refers to the decrease in value of the car over time. At the time of a claim, the insurer would deduct the depreciation applicable to the cost of spare parts or parts that had been used to replace the damaged ones. It means the owner would have to finance the gap out of their own pocket. Although one has a higher IDV, it does not protect against cost burden at the time of claims due to depreciation.
Therefore, in a zero depreciation product or engine, it allows the insured to claim the actual amount of spare parts without any deduction from the insurer. Another nickname for this is bumper-to-bumper insurance coverage. Some of the bumper plans even cover the fiber, rubber materials and metal parts of the car without deducting the depreciation value. Of course, it has a higher premium than the base policy.
Engine protection is an additional cover to the base plan. The engine is the most expensive part of a vehicle. This protects the vehicle’s engine parts, differentials and gearbox parts from damage caused by consequential losses from water ingress/lubricating oil leaks. This add-on is especially useful in a flood-prone area where the vehicle is vulnerable to damage due to flooding. This feature does not cover engine damage due to wear and tear. In addition, the cost of lubricants in case of leaks and cleaning consumables are not covered by this.
Consumables cover is another additional feature that reinforces comprehensive risk coverage. Consumables are goods that have a specific and limited use. They cannot be reused and must be replaced after a certain time. In automobiles, consumables include engine oil, lubricants, oil filter, nuts, bolts, break oils, etc. The replacement cost is borne by the owner with a traditional insurance plan. By paying a small additional premium, this add-on could be provided to the existing plan.
(The author is co-founder of “Wealocity”, a wealth management company and can be reached at knk@wealocity.com)
