What is not covered by your motor insurance policy

What is not covered by your motor insurance policy 

If you know anything about insurance policies, you know that nothing in that cover comes without an asterisk mark. While what is covered is written in big and bold, the exclusions, terms and conditions are often in fine print and also loaded with jargon. Your car insurance policy isn't any different. If the cover is a comprehensive or bundled plan i.e. it comprises third-party motor insurance as well as own-damages cover, understanding the conditions attached is even more complicated. Let us look at the major exclusions from your car insurance policy.

What third party insurance covers and does not cover

Third-party insurance is compulsory for all vehicle-owners as per the Motor Vehicles Act. It covers only your legal liability for the damage you may cause to a third party - bodily injury, death and damage to third party property - while using your vehicle. Third party cover does not pay for repair of damage to your car or if you suffer any car-related injuries.

Own Damage cover

It is the non-compulsory 'own-damages cover' part of the comprehensive motor policy that actually pays you in case of damage to or theft of your car It is, therefore, important to understand its scope in detail.

What is covered by a standard comprehensive motor policy:

Own-damages: Coverage against loss of or damage to your vehicle caused by accident, theft, fire, explosion, self-ignition, lightning, riots, strikes or act of terrorism, natural calamities. Third-party policy: Covers only your legal liability for the damage you may cause to a third party - bodily injury, death and damage to third party property - while using your vehicle. Personal accident cover for the owner-driver subject to conditions.

You might assume that buying a comprehensive insurance coverage for your car means there will be no out-of-pocket expenses. Sadly, you are mistaken. There are rules, limitations and conditions within the policy that will decide your final claim amount.

Here is a run-down on the limitations of and exclusions from a standard own-damages insurance contract. Let's start with things that are completely off the policy limits.

The Permanent Exclusions List:

This list includes the following situations in which loss of or damage to your car is not covered.

> If the policy is not in force. That is the reason why timely renewals are absolutely necessary. The motor policy is a yearly contract and has to be renewed without a break. In case any damage happens post the expiry and before the next renewal, the loss won't be covered.

> If the insured or any other person, with the knowledge and consent of the insured, is driving the car under the influence of alcohol or drugs or any other intoxicating substance.

> If the vehicle was being driven by person without a valid driving licence.

> Damage to engine as a result of oil leakage.

>In case of violation of car manufacturer's guidelines for use of car and related failures or breakages.

> Any damage to the car due to war, terror attacks, invasion, foreign enemy action, civil war, mutiny, rebellion, hostilities, radiation or nuclear material/weapons are not covered under a standard motor policy.

> Deliberate accidental loss, that is a loss arising out of an accident or event that was deliberate is also not covered.

> Consequential losses, or, damages which are consequence of a certain action resulting by the policyholder or a third-party (whether intentional or by accident) and not an outcome of an uncertain event are not covered. For instance, engine damage due to hydrostatic loss during monsoons is a common consequential loss. This is because the damage did not happen because of flooding or the rains, but because someone cranked up the car in water-logged area. It could be a mistake, an intentional act or an action taken in an emergency situation, however, it won't be covered by the insurer as the risk was not covered.

>The policy would also not cover any contractual liability that a policyholder may have towards the insured asset, that is, the car. Contractual liability refers to any claim that may arise because of the policyholder entering into a contract. For instance, say the policyholder has pledged his car to someone (say against a loan) for a certain period of time and the car is damaged while being driven by the person to whom it has been pledged. Then any losses due to this damage won't be covered by your motor insurer. However, if the insured is driving the car, even if pledged to someone, then any damages to the car would be covered subject to the other conditions of the policy.

> If a claim is rejected by the insurer and not taken up in court within 12 months of the rejection then the claim would not be recoverable from the insurer at any point of time later.

Exclusions that can be included by paying extra premium:

There are many risks/expenses other than the permanent exclusions above, that are normally not covered under a standard comprehensive plan but can be included within the scope of the policy by paying extra premium. These include:

1. Gradual Wear and Tear: Loss due to normal wear and tear of the car is not covered under a standard plan. This is the reason why at the time of policy renewal, the insured value (technically called the Insured Declared Value (IDV) of your car is revised downward to adjust for depreciation. By doing this the insurance company is excluding the loss in value that your car has already suffered due to the normal wear and tear in the previous years. Depreciation rates are shown in the table below.

Depreciation rates used for arriving at IDV

NOTE: IDV of vehicles over 5 years of age and of obsolete models of the vehicles (i.e. models which the manufacturers have stopped producing ) is determined on the basis of an understanding between the insurer and the insured.

Not just the car, the IDV of additional accessories (not included in the manufacturer's listed selling price of the vehicle), fitted to the vehicle are depreciable. The rate of depreciation for all rubber, nylon/ plastic parts, tubes, batteries and airbags is 50%, while for fibreglass components it is 30%. For damage to tyres, unless the motor vehicle was damaged in the same incident /at the same time, re-imbursement is limited to 50% of the cost of replacement. For glass, depreciation is nil. For all other parts, including wooden parts, the depreciation rate is as follows:

However, adding a Zero Depreciation cover ensures that value of damaged parts is not depreciated before reimbursement and you get full reimbursement for cost of parts replaced. This cover extends to the repairing/replacement cost of fibreglass, rubber parts and plastic. Though, opting for a Zero Depreciation Policy will result in slightly higher premium it is worth considering , especially if your car is less than 5 years old.

2. Limited Liability: For own damages, no matter how big your loss is, the maximum that your insurer is liable to pay you is the IDV of your car as specified in the policy subject to deductibles.The IDV is the current market value of your vehicle on the basis of manufacturer's listed selling price of the brand and model. It is provided by the insurer in case of theft or total loss of vehicle. A vehicle will be considered to be a total loss, where the aggregate cost of retrieval and / or repair of the vehicle subject to terms and conditions of the policy exceeds 75% of the IDV.

However, even in case of total loss, where you get full IDV, the settlement amount is often much less than what you had actually paid for the car. Thus, what you get from your insurer in case of theft/total loss in a standard policy is well below the cost of buying a new car of the same or similar make and model again. Adding an Invoice Cover to your standard policy makes you eligible for reimbursement of the full original amount (as per invoice) paid for the car.

However, this cover is usually available only up to two years from the date of registration of the car. This cover only makes sense when your vehicle is brand new.

There are limitations on third party claims too: While there is no limit on the liability covered for injury or death, the cover for third-party property (usually the third party's car) damage is capped at Rs 7.5 lakh.

3. Mechanical or electrical breakdowns are not covered under a regular motor policy. Meaning, the most valuable part of the car, your engine is not covered for non-accidental failures or malfunctions. Now, imagine a situation where the engine of the car is submerged in a waterlogged area. Starting the car in such a scenario can result in the engine seizing. This will not be covered under regular insurance. Here, adding an engine protector cover will insure the car for all non-accidental exclusions related to your engine. It is highly recommended for luxury cars. Also, consider buying if you plan to take your car off-road and it has a low ground clearance.

4. Roadside Assistance: Similarly, a 24x7 Roadside Assistance cover provides support for basic on-road breakdown situations like tyre puncture, battery jump start, emergency fuel, medical assistance, etc. which are not covered under the regular policy. .

5. Extended Accident Cover: A basic personal accident cover for the owner-driver is compulsory provided the owner holds a valid driving licence and is able to drive the car. However, the passengers or a hired driver are not covered under personal accident insurance. There is an optional add-on personal accident cover for the passengers of your car as well as separately for your paid driver.

Third party cover does not include cover for your legal liability towards your paid driver. Therefore, if your car is not self-driven you need to buy a cover for your driver, under the Workmen Compensation Act. The size and premium for this cover are both fixed-- Rs 2 lakh coverage for a nominal price of Rs 50 (excluding service tax).

6. The standard motor cover is applicable only in India. However, the geographical area of motor policies may be extended to include Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka and Maldives for a flat additional premium of Rs 500 per vehicle, irrespective of the class of vehicle. Such geographical extensions, however, specifically exclude cover for damage to the vehicle, injury to its occupants, third-party liability in respect of the vehicle during air passage or sea voyage for the purpose of ferrying the vehicle to the extended geographical area. Within Indian borders, damages during transit by road, rail, waterway and air lift are covered.


Other out-of-pocket expenses:

The Deductibles: Claims under the own damages section of policies, covering all classes of vehicles, are subject to a compulsory deductible as per the table below:

A deductible is that portion of any claim, which is not covered by the insurance company, which the insured has to compulsorily pay out of his pocket at the time of claim settlement. Only the balance amount is payable by insurance company. However, you can get additional discount on your premium by adding a a voluntary deductible amount to the compulsory deductible. If your car is old you could consider going for a voluntary deductible to get a good deal on the premium.

Happy Investing

Source: Economictimes.com