Updated: August 4, 2020 5:22:50 pm
As per the Motor Vehicles Act, all car owners in India must have at least a third-party car insurance policy every time they drive. As a car owner, apart from complying with the law, buying car insurance must be part of your financial planning. In the event of any unexpected event that leads to damages to your car, an insurance policy will come in handy to reduce your financial burden and get compensation for the loss.
If you are still wondering if car insurance is necessary and think that you can do away without it, let’s understand its importance with an example.
Mr. Rakesh, a 36-year-old, Mumbai resident drives his car to work every day. A financial planner by profession, Mr. Rakesh knew the importance of car insurance, and he purchased a comprehensive policy to get maximum protection against damages in an accident.
Mr. Rakesh used his clean driving history to his advantage and got an attractive discount on the premium. Additionally, being a responsible driver, he has never filed for a claim. During his renewal in the fourth year, he used his accumulated NCB and got a further discount of 20% on the premium.
Thus, being a smart customer and a safe driver, Mr. Rakesh saved a significant amount on his car insurance premium.
Getting a discount on the car insurance premium is no rocket science. You, too, can save on your policy premium by being aware of the nitty-gritty of the policy terms and conditions and using it to your advantage.
Apart from getting a discount on the premium, Mr. Rakesh got additional savings by investing smartly in car insurance. Let us see how?
Taking advantage of total loss benefit
When you buy a standard car insurance policy, the insurance company may tell you that you will get total loss benefit in the event of an accident. However, in reality, total loss benefit does not mean that you will get full replacement cost against the claim you make.
In insurance parlance, the total loss for any asset means that the damaged asset’s repair cost is more than its insured value. In the case of car insurance, a ‘total loss’ is when the repair cost of the damaged car is more than 75% of its IDV (Insured Declared Value). So, irrespective of whether your vehicle was ten days or ten months old, if your car is damaged, you will receive only 75% IDV as compensation.
The insurance companies generally determine the IDV of the car (which is not older than five years) by applying a pre-defined deprecation factor on the car’s showroom price. And the IDV is set at the time when you purchase the policy, and when you sign the policy papers, you agree for the same.
But, Mr. Rakesh being a smart investor and a tactful planner, knows the implications of the total loss benefit and is aware that he will not get any reimbursement more than the IDV determined by the insurance company. So, Mr. Rakesh purchased a ‘return to invoice’ add-on cover. With this additional coverage, the insurer will pay the difference between the insured declared value and the invoice if you suffer a total loss.
Thus, when his car was damaged completely, he got additional compensation of more than Rs. 30,000 than what he may have got without return to invoice add-on. Remember, you can buy this add-on only for cars that are not over two years old from the date of purchase.
While the ‘return to invoice’ add-on may increase your premium, it is a worthy investment considering the benefits you get in the event of total damage to your car. Be like Mr. Rakesh, and invest in your car insurance smartly.
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