Have you recently purchased car insurance for your new vehicle but find the terms and jargon in the policy document confusing? Or are you planning to buy one and need to understand the details of car insurance? In this article, we will simplify some common terms found in car insurance policy documents to help you understand your coverage better.
Decoding Common Terms and Jargon in Insurance Documents
Car insurance policies often include terms that can be difficult to understand. Knowing these terms is crucial for making informed decisions about your insurance and ensuring you are adequately covered in unexpected situations. We have simplified these terms so you can grasp them before signing your insurance contract.
Insurer and Insured
A car insurance policy is a legal agreement between the insurer and the insured. The insurer is the car insurance company providing the coverage, while the insured is the person who purchased the policy. The insured also refers to the vehicle covered by the policy.
Acts of God/Nature
Acts of God/Nature are natural disasters that occur without human intervention, such as earthquakes, cyclones, floods, or hurricanes. Any damage to the insured vehicle caused by these natural events is covered by a comprehensive car insurance policy.
Deductible
There are two types of deductibles: mandatory and voluntary. A mandatory deductible is the amount a policyholder must pay as part of a claim. According to the IRDAI, the mandatory deductible is Rs. 1,000 for vehicles with an engine capacity up to 1,500 cc and Rs. 2,000 for vehicles with engines larger than 1,500 cc. A voluntary deductible is an additional amount the policyholder agrees to pay in the event of a claim, which can help lower the insurance premium.
Own Damage Cover
Own Damage (OD) cover provides insurance for damages sustained by the insured vehicle due to accidents, natural disasters, theft, fire, and other man-made acts. It essentially covers accidental damage to the policyholder’s vehicle.
Insured Declared Value (IDV)
The Insured Declared Value or IDV is the maximum compensation a policyholder receives if their vehicle is completely lost or damaged beyond repair. It represents the current market value of the vehicle minus depreciation. The IDV also influences the insurance premium, with a lower IDV resulting in a lower premium and vice versa. It’s advisable to set an IDV close to the vehicle’s market value.
Liability to Third Parties
Third-party liability refers to damages or injuries caused to another person or property by the insured vehicle. In third-party insurance, the insurer compensates for damages to the third party due to an accident. It covers death, disability, or bodily injury to a third person and damage to third-party property.
Personal Accident Cover for Owner-Driver
A personal accident cover is a mandatory add-on that car owners must have. This cover provides compensation of up to Rs. 15 Lakh if the owner-driver suffers disability or death in an accident. It requires a nominal extra premium.
Premium
The premium is the amount the policyholder pays to the insurer for the car insurance policy. The final premium amount is calculated based on factors like the car’s make, model, variant, fuel type, and the coverage opted for.
Endorsements
Endorsements refer to modifications made to an existing car insurance policy document. If there are errors or changes needed in the policy document, such as personal information, policy expiration date, or policy number, an endorsement can correct them. Endorsements can be financial (involving a nominal fee) or non-financial (no fees charged).
No Claim Bonus (NCB)
No Claim Bonus or NCB is a discount given by the insurer for not raising a claim during a policy year. This discount can reduce the car insurance renewal premium for subsequent years.
Personal Accident Cover for Unnamed Passengers
By paying an additional premium, a policyholder can buy a PA cover for unnamed passengers. This cover provides compensation for physical injuries, death, or disability sustained by passengers in the car at the time of an accident.
Break-in Insurance
Break-in insurance refers to the period between two policies when the insurance has lapsed. During a break-in, the car must be inspected before renewing the insurance. If the break-in period exceeds 90 days, the accumulated No Claim Bonus reward is lost.
First Notification of Loss (FNOL)
First Notification of Loss (FNOL) is the initial notification to the insurance provider about damage to the insured vehicle. To avoid claim rejection, FNOL should be initiated within 48 hours of the accident.
Wrapping Up
Understanding the terms and jargon used in car insurance policy documents is essential to ensure you have the right coverage to protect yourself and your vehicle. By familiarizing yourself with these terms, you can make informed decisions during policy purchase or renewal and avoid claim rejections in the event of an accident.
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