Understand the Nitty-Gritty of Car Insurance Policy Documents

Have you recently purchased a car insurance policy for your new car? But cannot decode the complex terms and jargon used in your policy document? Or are you planning to buy one and want to learn the nitty-gritty of vehicle insurance? In this article, we will decode some common terms found in car insurance policy documents, making it easier for you to comprehend your coverage.

Read more

Decoding Common Terms and Jargon in Policy Documents

A car insurance policy document contains terms that are hard to comprehend. Understanding these terms is crucial for making informed decisions about your coverage and ensuring you are adequately covered in an unforeseen event. Thus, we have simplified these terms so that you understand each of them before you sign the contract with your insurer.

Below, we have mentioned some common motor insurance terms and their explanation in a simple manner.

1. Insurer and Insured

   A car insurance policy is a legal contract between the insurer and the insured. In this definition, the insurer refers to the car insurance company that sells insurance. On the other hand, the insured can be the person who bought the said car insurance policy. Insured can also be the four-wheeler that has been insured under the policy.

2. Acts of God/Nature

   Acts of God/Nature refer to natural disasters caused without human intervention. Some of these can be an earthquake, cyclones, floods or hurricanes. Any damage to the insured vehicle caused by these natural disasters is covered by a four-wheeler insurance policy.

3. Deductible

   Deductibles can be of two types: compulsory and voluntary deductibles.

   A compulsory deductible is the mandatory amount that a policyholder is required to pay as a part of the claim. According to the IRDAI, the compulsory deductible is Rs. 1,000 for cars with an engine cubic capacity (cc) of no more than 1,500 cc and Rs. 2,000 for cars with more than 1,500 cc.

   A voluntary deductible is a part of the claim that a policyholder voluntarily pays to the insurer at the time of policy purchase. The rest of the claim amount is paid by the insurer. Opting for a voluntary deductible is also a great way to reduce your car insurance premium.

4. Own Damage Cover

   Own damage is a type of car insurance that provides coverage for damages sustained by the insured car caused by accidents, natural disasters, theft, fire, manmade acts, etc.

   The own damage component basically implies accidental damage to one’s own (insured) car.

5. Insured Declared Value/Sum Insured

   The Insured Declared Value or IDV in vehicle insurance is the maximum compensation a policyholder receives if his/her car sustains total loss or gets damaged beyond repair. It is the current market value of a car minus the depreciation that a policyholder gets at the time of total loss.

   The amount of IDV also impacts car insurance premium. Going for a lower IDV can lead to a lower premium and vice-versa. So, it is recommended to set an IDV that is at par with the current market value of your four-wheeler.

6. Liability to Third Parties

   Liability to third parties refers to damages or injuries caused to any third party due to the insured car. In third-party insurance, the insurer compensates for the damages to the third party due to an accident.

   Third-Party liability includes:

   • Death, disability or bodily injury of a third person
   • Damage to the property of the third party.

7. Personal Accident Cover for Owner-Driver

   A personal accident cover is a compulsory add-on that a car owner should have under his/her car insurance policy. This cover can be purchased by paying a nominal additional premium.

   It offers compensation of up to Rs. 15 Lakh in case the owner/driver of the insured car suffers a disability or dies in an accident.

   Also Read: Personal Accident Cover for Owner-Driver

8. Premium

   Premium is the amount that an insured/policyholder pays to the insurer in return for purchasing a car insurance policy. The final amount of the premium is calculated based on various factors like make, model, variant, fuel type, coverage opted, add-ons, etc.

9. Endorsements

   Endorsements refer to the process of making modifications to an existing car insurance policy document. If you find any mistake or error in your policy document related to your personal information, policy expiration date, policy number, etc, make sure to rectify it via an endorsement.

   Endorsement can be financial (under which the insurer charges a nominal fee) or non-financial (no fees are charged for making modifications) in nature.

   You May Also Read: Know Everything About Endorsements in Car Insurance Policy

10. No Claim Bonus

    No Claim Bonus or NCB refers to the discount given by the insurer for not raising a claim during a policy year. This discount can be used to reduce car insurance renewal premium for subsequent years.

11. Personal Accident to Unnamed Passengers

    By paying an additional premium, a policyholder can also purchase a PA cover for the unnamed passengers. This cover provides compensation for bodily injuries/death/disability sustained by the passenger present in the car at the time of accident.

12. Break-in Insurance

    A break-in insurance is the time duration between two policies refers to the break-in period. In the situation of break-in, your car insurance policy lapses and you are required to get your car inspected for renewing the insurance policy.

    Moreover, if this break-in period exceeds 90 days, you also lose your accumulated No Claim Bonus reward.

13. First Notification of Loss (FNOL)

    First Notification of Loss (FNOL) in car insurance refers to the first time you notify your insurance provider about the damage sustained by the insured vehicle. To avoid any claim rejection, make sure to initiate FNOL within 48 hours of meeting an accident.

Wrapping Up!

Understanding the terms and jargon used in car insurance policy documents is essential for ensuring you have the right coverage to protect yourself and your vehicle. By familiarizing yourself with these terms, you can make informed decisions during policy purchase or car insurance renewal and avoid any claim rejections in the event of an accident.