Team AckoMay 17, 2022
You will come across various terminologies while researching, comparing, buying, renewing, or claiming car insurance. This Car Insurance Glossary will help you to understand these terminologies so that you can make an informed decision. Note that the explanation of the car (vehicle) insurance terminologies is simplified to aid understanding and not meant to be considered as an explanation of legal terms.
Listed below are common car insurance terms in India and their explanation in an alphabetic order.
Add-on covers or Riders are additional insurance covers that can be purchased while buying a Comprehensive Plan. These plans cannot be bought with a Third-party Plan nor can they be purchased as a stand-alone cover. Add-on covers can be coverage-related or service-related. For example, a Zero Depreciation Add-on is more of a coverage-enhancement add-on while a Roadside Assistance Add-on is a service-related Add-on.
You can include one or more add-ons in your Comprehensive Car Insurance coverage. Note that each add-on will add to the final payable premium. Thus, it is suggested to buy only those add-ons that add value.
An anti-theft device is a gadget that can be installed in your vehicle to prevent vehicle theft. Such devices can trigger an alarm and/or have in-built GPS for tracking. Consider installing anti-theft devices that are certified by the Automotive Research Association of India (ARAI).
Installing such devices increases your vehicle’s safety quotient and decreases the chances of theft. As the theft risk is reduced, the insurer’s risk of insuring the vehicle is also reduced. This can be reflected in the payable premium. Speak to Customer Care about incorporating Anti-theft Device discount while insuring your vehicle.
Break-in Insurance is a term used when there has been a considerable break between two insurance policies. Such policies are also known as Break-in Policies.
In case of such policies, there’s a chance that the insurer might want to inspect the vehicle before renewing the insurance policy. This can increase the premium. Thus, it is suggested to renew the policy before the expiry date to make sure there is no break in between policies. Also, if the break is of more than 90 days, the accumulated No Claim Bonus can reset to zero, leading to a higher premium while renewing the plan.
When it comes to claim settlement, a fixed part of it needs to be contributed from your side as well. This is known as the Compulsory Deductible amount. This is a pre-decided component, which is decided by the Insurance Regulatory and Development Authority of India as per the vehicle engine’s cubic capacity.
For example, if the vehicle’s repair bill is Rs. 10,000, the deductible will be Rs. 1,000 for a vehicle less than 1500 cc. Thus, the insurer will contribute Rs. 9,000 and you will contribute Rs. 1,000. Note that for cars with more than a 1500 cc engine, the Compulsory Deductible is Rs. 2000.
A Comprehensive Car Insurance policy consists of Third-party (TP) and Own Damage (OD) coverage. It is also known as an OD + TP cover. With this plan, you meet the legal requirements with the TP cover and insure your vehicle against damages with the OD cover. Also, you have the option to enhance the cover with add-on policies while buying or renewing Comprehensive Car Insurance.
When an insurance company has a tie-up with a vehicle repair garage for cashless claim settlement, that garage is termed as a Cashless Garage. They are also known as Partner Garages and Network Garages. The biggest advantage of a Cashless Garage is that the insurer directly settles the car’s repair bill with the garage. You just have to pay for the charges that are not covered by the insurance company. For example, you will have to pay for the deductibles, depreciation, and any other extra repairs that are not covered by the policy. This is because Cashless Garages support Cashless Claims. The alternate to this is Reimbursement Claims.
In Reimbursement Claims, you have to settle the repair bill with the garage and then get in touch with the insurer to reimburse the amount. You will have to submit the repair bill along with other documents as a claim application. This process is often tedious and lengthy.
Car repair can be a tedious task for the mechanic if the damage is substantial. Depending upon the complexities of the damages, the mechanic uses several consumables to repair the car. For instance, the mechanic might use nuts and bolts, engine oil, ball bearings, lubricants, screws, etc. The expenses incurred for such minor tools/usable are termed as consumables. Such expenses are not covered by the insurer unless you have a Consumable Cover Add-on.
A claim is an intimation to the insurer about a specific incident. When a claim is raised, the insurance company begins investigating the incident and if the claim is approved, the settlement process begins. When the claim settlement process is complete, the policyholder is paid the respective claim amount. Nowadays, you can raise a motor insurance claim online.
This can be understood as the ratio of claims settled and claims received by the insurer. It is expressed in percentage and used to gauge the claim settlement rate of the insurer. A higher CSR means higher chances of claim settlement. However, the CSR should not be the sole factor for selecting an insurer as you must also consider overall services, policy coverage, and online reviews.
A deductible is an amount that the policyholder pays at the time of claim. There are two types of car insurance deductibles – compulsory and voluntary. A policyholder can choose to opt for voluntary deductible. It is important to note that opting for a voluntary deductible can result in a lower claim amount.
Endorsement is a process by which you can make changes in your car insurance policy document. This is the document you receive after making the online payment to buy the policy. If you want to change a detail mentioned in the policy document, for example, a spelling mistake, you can get it done via an Endorsement process.
In some cases, it is also allowed to make changes in the existing cover via this process. For example, if you modify your car and want to insure the modified parts as well during the policy period, you can do so using the Endorsement process. You need to get in touch with the Customer Support team to initiate the Endorsement process.
The Engine Protect Cover Add-on extends insurance protection to the car’s engine by providing coverage not offered by the Comprehensive Cover. For example, consequential loss such as hydrostatic lock is covered under the Engine Protect Cover.
When you notify the insurance company about the damage to your car or a car accident, it is termed as the First Notification of Loss. Make sure to perform the FNOL at the earliest, preferably on the same day of the incident to avoid claim rejection based on late intimation.
Since car insurance is usually for the vehicle and not specifically for the person driving it, the most common usage of the term ‘insured’ is for the vehicle. Here’s an example of the usage. The Comprehensive Car Insurance Policy covers damages caused to the insured vehicle due to natural calamities. In certain cases, the term ‘insured’ might also mean the vehicle’s owner/driver. Thus, the usage and meaning can be subjective.
Insurer refers to the company from whom you are purchasing or have purchased the car insurance policy. If you buy car insurance from www.acko.com, ACKO becomes the insurer. Note that an agent selling the policy cannot be termed as an insurer.
To become a certified insurer, the organization needs to comply with the requirements put forward by the Insurance Regulatory and Development Authority of India (IRDAI). Before buying or renewing car insurance, make sure you are buying it from a certified insurer.
As mentioned above, the term ‘insured’ in car insurance means the vehicle. Thus, the Insured Declared Value, is the declared value of the insured (or to-be insured) car. It can be understood as the prevailing value of the car on account of depreciation. Note that it is not to be confused with the resale value of the vehicle.
Insured Declared Value is the sum insured related to the Comprehensive Car Insurance Policy. This means, if the vehicle is damaged beyond repair or is stolen, the insurer will pay the IDV of the vehicle at the time of claim settlement. When you buy a Comprehensive Plan from ACKO, you get to select your car’s IDV from a given range.
IDV selection has a direct impact on the sum insured. As a result, it also affects the payable premium to purchase the policy. Going for a lower IDV will lead to a lower premium. But it also means in case of a total loss, the claim payout will be comparatively less. A higher IDV will mean a higher premium and a comparatively higher claims pay-out.
Do note that in case of Third-party vehicle insurance, you don’t have the option of selecting your vehicle’s insured value.
This is the ratio of net claims of an insurance company and the net premium earned by an insurance company. It is expressed in percentage and used to gauge the financial health of the insurer. Here’s the formula to calculate Incurred Claim Ratio: Net claims/Net premium x 100.
A situation where you are legally bound to compensate others for your actions involving the insured car is known as a legal liability. For example, if your out-of-control car damages a legal, roadside shop, it is your legal liability to compensate the shop owner for the damages. Such legal liability is covered by a Third-party Liability policy.
How about receiving a reward for driving safely and refraining from raising a claim? This is exactly what NCB offers. You are rewarded with a renewal discount by the insurer for not raising a car insurance claim during the policy period. This discount can be as high as 50% if you do not raise claims for five years continuously.
If you raise a claim, this renewal discount resets and you have to start accumulating it again. This discount can also reset if the gap between policy expiry and policy renewal is more than 90 days. Note that such a discount is on the Own Damage component of the Comprehensive Car Insurance Policy.
An Own Damage or OD Cover insures your car against damages caused by accidents or calamities. It also covers vehicle theft. Here, the term ‘Own Damage’ refers to damage caused to your ‘own’ insured vehicle and not to a third party’s vehicle.
When you come across sentences like the Comprehensive Car Insurance offers Own Damage Cover, it means that if your vehicle gets damaged due to collusion, flooding, or other incidents mentioned as inclusions in the Policy Wordings, the insurer will pay to repair those damages as per the policy’s terms and conditions.
This add-on can come in handy during an outstation trip. With this add-on by your side, the insurer will help you with a fixed amount in case the car meets with an accident, faces a breakdown or is immobilized outside a radius of 100 kilometers from the place of residence.
If you purchase a car insurance plan for yourself, you shall be the policyholder. If you purchase a car insurance plan for a car owned by your spouse, the spouse shall be the policyholder.
The document you receive from the insurer after paying the insurance premium to insure your car is known as the car insurance policy document. It contains details about the policyholder, the nature and tenure of the policy, along with a break-up of the premium. The policy document is commonly referred to as car insurance papers. This is the document you are supposed to present to the police officers if they demand car insurance papers.
Policy period or policy tenure is the duration for which the policy shall remain active. Your policy document will feature the policy’s start date and the end date, signifying the policy period. Make sure to renew the car insurance policy before the end of the policy period for continuous insurance coverage.
In case of a private vehicle, the people seated in your car (apart from the driver) are termed as passengers. For example, if you are travelling with your family in your car, and you are driving it, then your family members will be the passengers.
Premium or insurance premium is the amount of money you pay to purchase the insurance policy. This premium is paid by you to the insurance company. The precise amount of payable premium will depend upon the type of coverage chosen by you.
Consider you want to purchase a Comprehensive Car Insurance Policy for your four-wheeler. You visit www.acko.com and select a suitable policy. The money that you pay to buy that policy is known as an insurance premium.
A Personal Accident Cover is an insurance plan against permanent disabilities or death of the vehicle owner/driver while driving the insured vehicle. This cover is up to Rs. 15 lakhs. For example, if a person permanently loses his limbs in a car crash, that person shall be compensated monetarily as per the Personal Accident Cover’s terms and conditions.
From January 1, 2019, the Personal Accident Cover was unbundled. This means, if you already have this cover then you need not buy it again. Here’s an example. If you have owned a car for a few years and you have a Personal Accident Cover under the car’s insurance plan, you do not need to buy it again while insuring your second car.
Usually, you are required to submit proof of loss while making a claim application. If you are raising a claim for car theft, you will be asked for a First Information Report and/or a No Trace Report from the police as a Proof of Loss document.
With this add-on, the insurer will arrange for emergency assistance services if your car breaks down during the journey. The insurer will send a mechanic for on-spot repairs. If it is not possible to repair the vehicle on the spot, towing assistance shall be provided.
Return to Invoice Cover is an add-on that comes in the picture in case the vehicle faces total loss. Here, instead of the IDV, you shall receive the car’s invoice value. Thus, the name, Return to Invoice. Generally, the invoice value of the car is much higher than the IDV.
This cover goes by the following names: Third-party Insurance, Third-party Liability Car Insurance, Mandatory Insurance, Liability-only Insurance, and Third-party Policy. This is a mandatory car insurance cover as stated under The Motor Vehicles Act. Driving a car with an inactive TP cover is a punishable offence. It can lead to monetary penalties, legal hassles, and even imprisonment!
The TP cover insures you against third-party liabilities that can occur if your car injures a person or damages their property. For example, if you lose control over your vehicle and it crashes into a pedestrian or a roadside shop, you are liable to compensate for the injury or property damage. With the TP cover, the insurer will cover such liabilities for you.
An insured vehicle is deemed as total loss if it gets damaged beyond repair due to a calamity or major accident. Another situation in which a car can be considered as total loss is in case of theft.
This deductible is over and above the Compulsory Deductible. Here, you are volunteering to contribute more from your side while settling the claim. Because you are volunteering to do so, you are reducing the insurer’s risk of insuring the vehicle. Thus, opting for a Voluntary Deductible can reduce your payable premium.
If you opt for a Voluntary Deductible, your premium might be less but your receivable claim amount will be lower. For example, if the vehicle’s repair bill is Rs. 10,000, the Compulsory Deductible will be Rs. 1,000 for a vehicle less than 1500 cc. and the chosen Voluntary Deductible is Rs. 1,000. Thus, the insurer will contribute Rs. 8,000 and you will contribute Rs. 2,000.
This add-on negates depreciation calculation while settling claims. Depreciation is the reduction in the value of the car parts due to natural wear and tear with time. When such damaged parts need to be replaced, the depreciated amount of the parts is taken into consideration to calculate the claim amount. However, with the Zero Depreciation Add-on, such reduction won’t take place and you will receive a comparatively higher claim amount.
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