is a form of contract between the owner of the car and the insurance company that protects the owner from financial loss in the event of an accident or theft. Owners are required to pay a yearly premium to avail insurance, where the company pays for losses included in the policy. Car insurances (and the premium paid) depend largely on the damage to the vehicle and the usage of the insurance.
For instance, if a person’s vehicle is part of an accident but comes out relatively unharmed with minor dents or so, and the person chooses to forgo the insurance, they risk losing the premium they paid for protection. On the other hand, it is also advised to not claim insurance for minor damages to vehicles as car insurance policies usually include a bonus when a person does not claim insurance for a certain period.
Roughly, it means that if a person does not avail insurance, they get a certain amount back as a bonus. This bonus starts at 20% of the premium in the first year but goes on to become a substantial amount, amounting to 50% of the premium in the sixth year of unclaimed insurance.
The premium to be paid by the vehicle owner and the value of the vehicle’s insurance policy is calculated on the basis of the insured declared value (IDV) of the vehicle. The IDV of a vehicle is the maximum amount that the insurer will pay to the owner in case their vehicle is damaged. Usually, the insured declared value is roughly equal to the market value of the vehicle. It is important to note that the IDV of a vehicle does not remain the same throughout the period of insurance.
When an owner renews their motor policy after a year or so, the IDV will decrease, as the market value of the vehicle will have gone down. A certain rate of depreciation is applied on vehicles which have crossed the one or two year mark. The IDV is thus, the total of the manufacturer’s listing price and the price of accessories not included within the listed price, from which the overall depreciation is reduced.
Often owners quote figures less than the actual market value to pay a lesser premium – however, this also means that owners claim less for damages. This practice is not recommended as the insurance provider might not cover all the damages to the vehicle. Car insurance policies last only for a stipulated period after which owners have to renew them or risk the payment of heavy fines.
What does insurance comprise of?
A comprehensive car insurance plan must include insurance in the event of loss or damage due to natural or human-made calamities such as floods, hurricanes or burglary, and theft, among others. A car insurance policy should also include a personal accident cover, which secures the future of the owner’s family in the event of permanent disablement or the unfortunate circumstance of death. A substantial amount is provided as coverage in case damage is caused to the driver while travelling in the car, mounting or dismounting from the car.
Some insurers also provide such covers for co-passengers. A third party legal liability is also included in insurance, as mandated by law. This cover protects the owner against the legal liability of accidental damages that have resulted in permanent injury or death of a third party. This also covers any damage caused to surrounding property. Some insurance agencies also run a garage facility for reparation of the vehicle, providing free maintenance for vehicles insured by them.
While insurance policies are fairly comprehensive and attempt to protect owners from most negative consequences, there are certain situations which aren’t covered by insurance. In case the owner is under the influence while driving or the loss or damage caused to the vehicle is deliberate, insurance is not provided. Even normal wear and tear of a car that accompanies usage is not insured. Damage caused to cars during unlicensed driving is also not covered under car insurance.