Many people are working from their homes nowadays. Since they are making minimal use of their cars, some have decided not to pay the premium if their motor insurance policy comes up for renewal. The Ministry of Road Transport and Highways had issued a notification which extended the validity of all vehicle documents, such as driving licence, permits and fitness certificates until December 31, 2020. The General Insurance Council (GIC) has, however, clarified that this does not include insurance papers and that motor policies must be renewed on or before the due date.
Not renewing on time carries a high price
Not renewing your motor insurance policy on time can lead to several problems. “If you are forced to use your vehicle due to an emergency and are stopped by a traffic cop, you could end up paying a heavy fine. The fine rises each time you are caught,” says Sajja Praveen Chowdary, head-motor insurance, Policybazaar.com.
The law mandates that you must have at least a third-party cover when you take a vehicle out on the roads. If you are involved in an accident and end up hurting someone, the liability will have to be borne entirely by you, and that can prove to be a very expensive proposition. You will also have to pay out of your own pocket to get your vehicle repaired.
If you have not made a claim for the past several years, a no-claim bonus (NCB) would have accumulated. The NCB can go up to 50 per cent of the premium (you get a discount to that extent) on the own damage portion of the policy. “If three months pass after the deadline for renewal, you will lose out completely on the NCB,” says Naval Goel, chief executive officer, PolicyX.com.
Some companies charge a higher premium for renewing expired policies. When you apply for a comprehensive policy after expiry, insurers also insist on inspecting the vehicle. “If the inspection reveals damages, the insurer will exclude those from coverage. You will then have to pay out of your own pocket to get them repaired,” says Animesh Das, head of product strategy, Acko General Insurance.
Experts say it is best to initiate the renewal process 15-20 days prior to the deadline so that in case hurdles arise in the process, you have enough time to deal with them.
Key points to pay heed to while renewing
Compare the premiums from several insurance companies before you buy. Better premium rates are usually available from insurance companies’ own direct channels (phone or web site).
Next, buy the right amount of cover, referred to as the Insurance Declared Value (IDV). The value of the vehicle depreciates each year. The Insurance Regulatory and Development Authority of India (IRDAI) issues a table which insurers need to follow to arrive at the IDV for the first five years of the vehicle’s life (after which each insurer follows its own methodology). “As a rule of thumb, take the ex-showroom price and apply a 10 per cent annual depreciation. That will give you a good estimate of what the IDV should be. Also, get a sense of how much your car will fetch in the second-hand market. This is the amount you would want to be compensated in case of total loss of the vehicle. These two numbers will give you a good estimate of the amount of insurance you need to buy,” says Das. If you get premium quotes from two or more players, make sure they have used the same IDV. Don’t allow a seller to hoodwink you by offering a lower premium on a reduced IDV.
Just as you should not be under-insured, you should also avoid getting over-insured. As the premium rises, so does the intermediary’s commission. Some sellers could try to make you purchase add-ons that you don’t need.
The policy you buy should meet your needs. If the car is going to mostly lie idle this year, buy a third-party cover at least. Buy only those add-ons that you need. “Take into account the risks you are subject to. If you live in an area that is prone to flooding, buy an engine protect cover. If you drive long distances, a roadside assistance cover will prove handy. And if you live in an area where a lot of thefts happen, buying an invoice protection cover would be the smart thing to do,” says Chowdary. Suppose that the ex-showroom price of a car was Rs 10 lakh, and after five years its IDV is Rs 5 lakh. If your car is stolen or completely wrecked in an accident, you will only get Rs 5 lakh. But if you buy an invoice protection add-on cover, you will be compensated for Rs 10 lakh and can buy a new car with the insurance money.
A zero-depreciation cover is another add-on that owners of new vehicles should especially consider. “This will ensure that your insurer pays you the full value of any part that has to be replaced. If you don’t have this add-on, the insurer will apply depreciation to the price of parts and then compensate you,” says Goel.