Most car owners and car drivers know about car insurance. Most purchase it merely because it is made mandatory by law. Despite this, very few know the importance of car insurance. Moreover, it’s only a fraction of car owners who actually understand all the terms mentioned in a car insurance policy and its significance. 

But it’s critical that you understand them well. You must know what you are paying for and secondly, the knowledge lets you know if you are adequately and rightly covered by the law. Because of its importance; we throw light on a few basic terminologies often used in car insurance and their meanings. 

  • Insurance policy

It is a formal contract or document of your insurance which has all the legal terms and conditions of your insurance policy written clearly. It is the proof and rules via which any party can take the other to the court. 

  • Premium

It refers to the amount that you need to pay to the insurance company as specified by your insurance policy to get all the coverage and benefits mentioned in your policy. 

  • Third-party liability cover

It is available as a standalone policy or even as a part of your Comprehensive Car Insurance Policy. It compensates a third-party for damages to his car, property and any accidental injuries if your car has been involved in an accident and the fault lies with you. It is the minimum level of insurance that any car owner must buy to make their car legally compliant on the law. This cover is also popularly known as ‘act-only’ policy or ‘liability-only’ insurance. 

  • Own Damage (OD) cover

This portion of car insurance covers your vehicle against all damages incurred due to an accident, natural calamities, man-made disasters, theft, fire, etc. It might be noted that this coverage does not include any liabilities for third-party damages and death. 

  • Bodily injury

It refers to all injuries, disease and sickness and even death that comes as an outcome of a car accident. 

  • Legal liability

If your car is involved in an accident and any third-party suffers damages; you are legally responsible to pay for those damages. It is referred to as your legal liability. If you have purchased third-party insurance; then the insurance company would compensate the victims in sync with the legal requirements. This claim settlement is done in a Motor Accident Claims Tribunal and not the normal way in which your car’s damage is compensated. 

  • Insured Declared Value (IDV)

It is one of the most important terms of any car insurance policy. In simple terms, it is the current market value of your car and the

maximum sum assured that you can procure for your car. It decreases every year as your car depreciation happens with age. The price of the car is agreed upon at the time of inception of the policy.

If you are installing any accessories, they need to be insured separately. Even their price depreciates with age. 

  • Compulsory & Voluntary deductibles

While making any claim, a deductible is an amount that you need to pay before the insurance company comes into the picture and bears the rest of the amount. Deductibles are of two types-voluntary and compulsory.

Voluntary deductible is the amount that you can choose to pay at the time of making any claim. It is quite similar to copay in health insurance. A higher deductible means a lower premium as the liability on the insurance company decreases. 

A compulsory deductible is that amount that you have to pay and have no choice to raise it or lower it. Its value is decided by the cubic capacity of the vehicle. Usually a small amount; it is easily borne by most policyholders. The intention behind this compulsory deductible is to stop the policyholders from making frequent claims.

  • No Claim Bonus

It is the reward that is offered by the insurance company to those policyholders who have not made any claim for their car damage during the policy tenure. It is given out according to the terms and conditions laid down by the IRDAI. It starts from 20% of the premium amount for the first year to 50% of the premium amount after five years. 

  • Cashless garage

Most insurance companies have their network of garages. If you take your car for repair to these garages; you are not required to pay as the insurance companies settle the bill directly with them. You are only required to pay the deductible and other charges as laid down in the policy.

If you go to any other garage, you would need to foot the bill and then file for reimbursement that can be pretty hassling. 

Wrapping up 

 

There is plenty of other insurance jargon but we hoped to have covered the important ones for you to better understand the defined outcomes of any car insurance policy.