Car Insurance Terminology: 101

If you are someone who just bought your first car, first of all, congratulations on the new purchase! As a first-time car owner, you may not be familiar with all-things-cars and perhaps feel overwhelmed with the automobile jargon. What’s worse is the terminology and jargon you find in your car insurance policy documents. Fret not, we are here to help you understand the basic car insurance policy terminologies that you should know when you get your first insurance on car. Since the Government of India has made it mandatory for all vehicle owners on-road to own and possess at least a third-party insurance policy, it is advisable for you to be familiar with the basic terminology.

1. Third-party Policy: Some accidents are inevitable and the outcome can get messy especially if the damage is caused by us to someone else’s vehicle. This is why third-party insurance has been mandatory to ensure road safety. The insurance company (second-party) protects you (first-party) from any financial and legal liabilities, in case of an accident resulting in damages to a person or property. But, the policy does not cover damages for your own vehicle. 
2. Comprehensive Policy: Comprehensive car insurance policy, as the name suggests, gives an overall exhaustive coverage and protection for you and your vehicle. It protects you against third-party liabilities and provides financial aid to cover damages or losses to your car, in case of any mishap like an accident, a natural calamity, or theft. You could also customise your policy with quite a lot of add-ons like bumper-to-bumper, passenger cover, breakdown assistance, and a zero-depreciation cover, etc. However, based on the weightage of your cover, the premium also will be higher. 
3. No-Claim Bonus (NCB): Since no good deed should go unrewarded, insurance providers have introduced the no-claim bonus for vehicle owners who have not made any claims during their policy year. It is mostly offered as a discount for their next year’s premium amount at the time of renewal. It could range from 20%-50% and have a 5% increase with each claim-less year. That’s not even the best part. You could also carry forward your NCB to a different insurance company, if you are planning to change, or even transfer your earned when you sell your car and buy a new one. And, it all depends on whether or not you remember to renew your insurance on time so that your NCB will hold good. 
4. Insured Declared Value (IDV): In simpler terms, this term refers to the market value of your vehicle. This is the maximum approximate amount an insurance provider will pay, in case of a total loss or damage to your vehicle. The IDV also takes into account the age of your vehicle and the number of accessories you have installed in your vehicle. The depreciation percentage increases by 5% every 6 months or one year. It is important to calculate your IDV correctly when you buy your policy for it ensures whether or not your vehicle has been insured correctly. You could calculate the IDV of your vehicle with this: IDV = (Manufacturer’s listed price – Depreciation) + (Cost of accessories – Depreciation)
5. Depreciation and Zero Depreciation: Depreciation of a car is when the actual value of a car and its parts goes down due to wear and tear, over a period of time. It is said that the value of a vehicle goes down by 5%, the moment it leaves the showroom. The depreciation value depends on the age of the vehicle. So, when you file for a claim due to theft or irreparable damage, the insurance provider deducts this amount and then makes the payment. In case of a partial loss, only the depreciation of the parts will be considered. Zero depreciation is an add-on cover, which will eliminate the depreciation factor totally during the calculation of your claim settlement. This comes with a higher premium amount which is worth the benefits offered.

We hope these terms help you ease into the world of vehicle insurance and help you choose the right policy for your vehicle!