Buying a car insurance policy is about more than just choosing a product from a reputed company or picking one with the lowest premium. The ideal auto insurance policy is one that offers the best coverage for the widest variety of eventualities and saves you having to incur out-of-pocket expenditure when things go wrong. To ensure that a claim you make will be honoured by the insurance company, it is important to know exactly what you as a policyholder are paying for. Understanding motor insurance terms and what they actually mean can be very helpful; not just in layperson parlance but the specific, technical meaning of those terms.
Third party insurance
This type of insurance is compulsory under the law. This provides compensation only to the third party (not the policyholder or insurance company) who may be involved in an accident with the vehicle of the policyholder.
Comprehensive Insurance (car and 2-wheeler insurance)
This offers wider protection. It offers third-party insurance and also offers coverage for theft or damage of the policyholder's vehicle. A policyholder can opt for optional add-ons to make the policy even more comprehensive.
Personal accident cover
This is one of the most important motor insurance terms to understand. While comprehensive policies protect the vehicle, personal accident cover compensates the policy holder for physical injuries or disability arising out of a car accident. You can avail personal accident cover for the driver and all passengers, depending upon a car’s seating capacity.
No claims bonus
This is not relevant when you purchase insurance along with a new car, however, when it comes to car insurance renewal, this is one of the motor insurance terms you will come across. A no claims bonus is offered on policies where a policyholder has made no claim during the previous year. It is generally in the form of a discount over your premium. Insurance companies offer a no-claims bonus or discount for renewal of car insurance to discourage small or frivolous claims.
To make things easier for customers, car insurance companies make it possible for policyholders to buy the amount and type of coverage they require. These are optional add-on features that can be added to a basic or a comprehensive policy. The premium cost goes up, but the protection also increases.
This is the volumetric capacity or what we commonly refer to as CC of a vehicle. This is relevant because it determines the amount of premium payable.
Depreciation and zero depreciation cover
Depreciation is the term used to indicate the decrease in the perceived value of a vehicle each year after purchase. Typically, vehicle insurance premiums will go down over the years because of daily wear and tear and age will render a vehicle less valuable than at the point of sale. Zero depreciation cover (usually available for up to five years after initial purchase) is an optional rider that offers full compensation for replaced parts of a vehicle after an accident.
This term is important to keep in mind for car insurance renewal. Car insurance should be renewed promptly upon the expiry of an existing policy to prevent the policy from lapsing and to carry forward any accrued advantages such as no-claims bonus. Oversight or unavailability of finances could sometimes mean that a policy is not renewed on time. Hence, insurance companies offer a 90 days grace period for a policyholder to renew the policy and continue enjoying the benefit of NCB beyond the date of expiry.
Lag or time lag
This is the period that may have elapsed between the time of the accident and the time a claim is made. It is important to make a claim as promptly as possible. It can also refer to the time lag between making a claim and receiving payment or reimbursement for it.
This refers to garages and workshops that have a tie-up with the insurance company. The company encourages policyholders to use services of these garages which may also offer cashless facilities.
While there may be other motor insurance terms that you should acquaint yourself with, the ones listed above are important to know so that you can lower your chances of an unsuccessful claim.