Mastering motor insurance is a key step to driving in India. The Motor Vehicles Act requires that all vehicles on the road have a valid motor insurance policy. Driving an uninsured vehicle is punishable by law. It’s important that you get insurance for your car.
Insurance customers often find it difficult to understand the coverage offered by their plan when they first purchase it. The policy documentation is full of confusing legal terms and jargons.
We try to explain some of the car insurance terms here so you have a better experience buying a policy.
1. Actual Cash Value (ACV)
Actual cash value in California means the fair market value of an item, unless the policy defines it differently.
The value of an item in the market is the amount that a willing buyer would pay, and a willing seller would accept, without either party being under duress.
2. Additional Equipment Endorsement
This type of insurance provides coverage for certain parts and equipment that are not installed by the manufacturer. There is a limit to how much coverage is available on the endorsement.
3. Add-On Covers
These are additional insurance plans that you can opt for by paying an extra rider premium. If you have a comprehensive car insurance policy, you can make it even better by choosing the right add-on covers. Some of the most popular add-on covers in motor insurance are as follows:
Zero depreciation cover
Following an accident, the insurer will replace any damaged parts and deduct the depreciation on these parts from the payout.
If you have a zero depreciation cover on your basic car insurance policy, the insurance company will not deduct any depreciation on car parts. The policyholder therefore receives the full cost of replaced parts. A zero depreciation cover will not protect your car in the case of theft.
Roadside assistance cover
This cover is useful because it offers emergency services such as towing your vehicle to a nearby service station, arranging for alternate transportation, providing ambulance services, changing flat tire, arranging hotel accommodation, etc.
If your car breaks down in a remote location, it can be very useful. All you need to do is contact your insurance company and ask for assistance. The insurance company will send someone to help you as soon as possible.
Engine protect cover T
This cover is designed for vehicles that are commonly parked in areas that tend to flood. A comprehensive car insurance policy does not cover engine damage.
This add-on cover protects your car’s engine, making it a wise investment.
NCB protect cover
The “no claims bonus” that your car insurance policy gives you will be back if you make a claim under the policy. This can amount to a significant loss, particularly if the policyholder has accumulated a 40%-50% no claims bonus discount.
The NCB cover protects your no-claim bonus even after you have made a claim.
Return to invoice (RTI) cover
This cover is an add-on that will be very useful if your car is stolen. The RTI add-on cover provides you with reimbursement for the original invoice value of the vehicle if it is stolen. This includes road tax and registration charges.
If the policyholder does not have Return to Invoice cover for the vehicle, the only claim payout will be the IDV of the car.
4. Adjuster
This person is responsible for determining the amount of money that will be paid out for an accident or other covered loss.
5. Agent
An insurance company’s authorized agent who sells and services insurance policies.
6. Anti-Theft Device
An anti-theft device helps to prevent your vehicle from being stolen. Some insurers offer a discount on your premium if you have an approved anti-theft device installed in your vehicle as they consider it a sign of reduced risk.
This means you will get a discount on your own damage premium. There are several anti-theft devices that are used frequently which include a steering wheel lock, electronic immobilizer, car alarm, vehicle tracking system, and tire lock.
7. Assigned Risk
A driver with a bad driving record who can’t get insurance from a regular company is assigned to an insurance company that takes part in the assigned risk pool.
All insurance companies licensed to sell auto insurance in California are required by law to accept a predetermined percentage of high-risk drivers based on the percentage of auto policies they issue in the state.
8. Automobile Insurance
This is a type of insurance that protects you from any losses that may occur from using your automobile. Each auto policy contains a variety of optional coverages that the policyholder can purchase depending on their needs and wants.
There are many different types of coverages that can be offered under an auto insurance policy, but some of the most common ones are liability for bodily injury and property damage, medical payments, uninsured motorist, comprehensive, and collision.
9. Binder
A temporary insurance policy that provides coverage until the permanent policy can be issued.
10. Broker
An agent is a licensee who sells and services insurance policies on your behalf.
11. Broker-Agent
An insurance agent is a licensed professional who can represent one or more insurance companies, or act as a broker representing your interests with one or more insurance companies.
12. Broker Fee Agreement
The contract between the policyholder and the broker spells out the charges for the services rendered by the broker.
13. California Automobile Assigned Risk Plan (CAARP)
This plan is for drivers who cannot buy private or commercial liability auto coverage because of a poor driving record. (See Assigned Risk)
14. Commission
The agent’s commission is a portion of the policy premium that the insurance company pays to the agent as compensation for the agent’s work.
15. Commissioner of Insurance
This is the title of the head of the California Department of Insurance.
16. Comparative Negligence
Both drivers in an accident are usually assigned a percentage of fault for causing the collision.
17. Comprehensive Coverage
Comprehensive insurance covers damage to your car from sources other than collisions, such as fires, theft, vandalism, windstorms, floods, etc.
Explosion, fire, lightning, self ignition
Theft, burglary, housebreaking
Strikes or riots
Earthquakes
Hurricane, typhoon, flood, cyclone, inundation, tempest, hailstorm, storm, frost
External accidents
Malicious activities
Terrorist acts
If your vehicle is damaged while being transported via rail, road, inland waterways, lift, air, or elevator, you may be covered under your insurance policy.
Rockslides and landslides
that you cause to another person. This includes any accidental injuries, deaths, or property damage that you cause to another person.
18. Claim
This notice is to inform you that a loss has occurred which may be covered under the terms and conditions of your insurance policy.
19. Collision
This type of insurance covers damage to your car that was caused by another vehicle or object.
20. Declarations (DEC) Page
One of the most important aspects of an insurance policy is the first page, which contains essential information about the policy.
This page includes the full legal name of the insurance company, the policyholder’s name and address, the policy number, the effective and expiration dates, the premium amount, the types and amount of coverage, any deductibles, and the identification numbers for the insured vehicle or vehicles.
21. Deductible
The policyholder is responsible for paying a certain amount of money up-front before the insurance company will cover any expenses. This is applicable to comprehensive or collision coverage only.
22. Endorsement
An amendment to an insurance policy that alters the terms of coverage by adding or removing it.
23. Exclusion
A provision in an insurance policy that denies or restricts coverage for certain types of risks, people, property, or locations.
24. First Party
The policyholder (insured) in an insurance contract.
25. IDV
In a situation where your vehicle is stolen or totaled in an accident, you will only be eligible to receive benefit payouts equivalent to the IDV of your vehicle IDV stands for Insured Declared Value and it is the amount of money that you are insured for on your vehicle.
If your car is stolen or totaled in an accident, you will only receive benefits that are equal to the IDV. This is the manufacturer’s listed selling price of the car minus the depreciation that occurs over time. The price of the car is set when the policy is created.
If you add any new accessories to your vehicle that weren’t offered by the manufacturer, you will have to insure them separately. The Insured Declared Value (IDV) for such accessories will be the listed price of the accessories adjusted for depreciation with age.
26. Insured
The policyholder (or policyholders) is (are) the person (or people) who are entitled to covered benefits in the event of an accident or loss.
27. Insurer
The insurance company that provides coverage and pays for losses.
28. Liability Insurance
This is referring to the coverage a policyholder has in case they are sued for injuring another person or damaging another person’s property.
29. License
A certificate of authority is a document issued by the Department of Insurance that allows an insurer, agent, broker, or broker-agent to conduct insurance business.
30. Limits
This is the most that the insurance company will pay out in the case of an accident or damage.
31. Loan Gap Coverage
This coverage protects you if your car is totaled in an accident by paying the difference between what you still owe on your loan and the car’s current market value. This coverage is available on new vehicles only.
32. Low Cost Auto
This is a pilot program for low-income residents of Los Angeles and San Francisco Counties. (Administered by CAARP)
33. Medical Payments Coverage
This policy covers the medical costs up to a specified limit for you, your family, or others in your car who are injured in an auto accident. This coverage pays regardless of fault.
34. Non-Renewal
The end of an insurance policy at its regular expiration date.
35. Own Damage (OD) cover
This is a type of motor insurance that covers your vehicle against damage caused by accidents, fire, theft, and natural disasters. This part of the motor insurance policy does not cover injuries or damage to third parties.
This means that if your car is in an accident and is damaged, the insurance company will pay for the repair costs.
Your motor insurance policy will offer compensation if a third party was injured in the accident due to your negligence. The third-party liability cover under the plan will trigger this, not the own damage cover.
36. Policy
An insurance contract is a document that outlines the rights and responsibilities of both the insurance company and the policyholder.
37. Premium
The insurance premium is the price that the policyholder pays to the insurance company for their policy.
38. Premium Finance Company
A lending institution that finances automobile insurance premium for a fee. An institution that provides loans for car insurance premiums at a cost.
39. Producer
The insurance industry uses the term “distribution channel” to refer to agents and brokers.
40. Quotation
An estimate of the cost of insurance based on the information supplied to the agent, broker, or insurance company. This estimate is a good way to get an idea of how much your insurance will cost.
41. Recession
This policy is being canceled as of its effective date and all premiums paid will be refunded.
42. Rental Reimbursement Coverage
This policy will cover the cost of renting a car if you have a loss that is covered under either the Comprehensive or Collision benefits. This type of insurance coverage is sold with a daily limit for expenses.
43. Replacement Cost
Market value is the cost to replace lost or damaged property with new property of the same kind in the local market.
44. Salvage
In a loss settlement, the damaged property that is legally signed over to the insurer is called the policyholder property. Insurance companies sell property that has been damaged in order to reduce their financial losses.
45. Second Party
The insurance company in an insurance contract.
46. Subrogation
The process of getting damages paid out to a policyholder from the person who is legally responsible. The policyholder’s deductible must be included in the recovery process when a company pursues the legally liable third party.
47. Surcharge
The insurance company may charge an additional fee on top of the premium for accidents or moving violations that were the fault of the policyholder.
48. Third-party liability cover
This part of your motor insurance policy compensates a third party for accidental injury, death, or property damage.
There is no limit to the insurance coverage for third-party injuries or death, but property damage is capped at Rs.7.5 lakh.
If you purchase this insurance cover as a standalone policy from your motor insurance provider, it will be lower in cost. This insurance protects you if you accidentally damage someone else’s vehicle or property.
This insurance covers you for your liability to others, but not for damage to your own vehicle.
Conclusion
You will be able to understand the processes and outcomes that are defined in a car insurance policy document with the aforementioned information. It is important to read your policy documentation carefully and get clarification from the insurance company if needed.
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