Knowing the exact meaning of key terms associated with auto insurance is essential. Not only does it help you understand the inclusions and exclusions clearly, butit also helps you decide what you need. Some important terms to know include deductibles, No Claim Bonus, Insured Declared Value, and Return-to-Invoice.
This article will provide you with detailed explanations for what each of these means. Read ahead to gain a better understanding of auto insurance terms and select the vehicle insurance that best suits your needs.
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List of 12 Essential Auto Insurance Terms to Know
Below is a list of a few key terms in vehicle insurance that you need to know:
1. Compulsory Deductibles
When you make a claim settlement with your insurance, there is a fixed amount that you need to pay from your side. This fixed amount is known as the compulsory deductible amount. The Insurance Regulatory and Development Authority of India (IRDAI) determines the amount based on a car’s engine capacity.
For example, if a car with an engine capacity under 1500 cc has a repair bill of ₹10,000, the compulsory deductible is ₹1,000, which you pay, so the insurer pays ₹9,000. For cars above 1500 cc, the deductible rises to ₹2,000.
2. Voluntary Deductibles
When a policyholder wants to reduce the premium amount for their car insurance, they go for voluntary deductibles. The voluntary deductible amount is the extra amount that the policyholder is willing to pay during claim settlement.
3. Premium
The premium is the amount that a policyholder needs to pay to buy insurance for their car. This amount depends on the type of coverage the policyholder selects and the number of add-ons they have added to their original plan.
4. Add-Ons
Add-ons are extra covers you can include in your car insurance to enhance protection. They provide benefits beyond the base policy, covering specific parts or services. Examples include engine protection, consumable cover for small but costly parts, and no-claim bonus protection. These optional covers help reduce out-of-pocket expenses and ensure broader financial safety for your vehicle.
5. No Claim Bonus (NCB)
A no-claim bonus rewards policyholders who avoid filing claims during a policy year. When you renew your car insurance, you receive a premium discount, which increases with every claim-free year. This bonus can increase by up to 50%, making it a valuable incentive to drive safely, maintain your car correctly, and minimise small claims over time.
6. Zero Depreciation
Depreciation refers to the reduction in the value of car parts due to natural causes. When you claim your insurance, the depreciation amount of these car parts is taken into account at the time of replacement, which is used to calculate the claim amount. With a zero-depreciation add-on, you can negate the depreciation value from the calculation of your claims.
7. Consumables
Consumables are small yet essential items like nuts, bolts, screws, lubricants, ball bearings, and engine oil used during car repairs. A consumables add-on cover helps pay for these often-overlooked costs, reducing your out-of-pocket expenses during servicing or after an accident.
8. Cashless Garage
A cashless garage is an insurer-approved workshop where you can get your car repaired without paying up front. The insurer directly settles the repair costs with the garage, simplifying the claim process and reducing your immediate out-of-pocket expenses.
9. Total Loss
Total loss refers to the situation of complete loss that you can face in case your car gets damaged beyond repair or stolen. A total loss can occur if your vehicle is stolen, severely damaged in an accident, due to fire, explosion, or self-ignition, or in any other similar circumstances.
10. Third-Party
Third-party insurance covers expenses if your car causes damage to another person or their property during an accident. As per the Motor Vehicles Act, 1988, having valid third-party insurance is mandatory for all vehicle owners in India.
11. Insured Declared Value (IDV)
Passing time causes depreciation in a car. This means that its total value in the market decreases with time. Insured Declared Value or IDV is the amount that the vehicle is worth at the current time. This value represents the amount that your insurer will pay you if your car is declared a total loss.
12. Return-To-Invoice
Return-to-invoice is another type of add-on. This coverage comes into play if your car is declared a total loss. If you have this cover, then your insurer will pay you the difference between the invoice amount of your vehicle and the IDV.
Bottom Line
Understanding a few essential auto insurance terms is crucial to making informed decisions about your vehicle coverage. Knowing terms like deductibles, NCB, IDV, and add-ons ensures you select the right policy and avoid surprises during claim settlement. As you familiarise yourself with these concepts, you can maximise protection for your car while minimising costs.
