Why you must buy comprehensive insurance cover throughout your car's life

Add-on covers like return to invoice, zero depreciation will cut your out-of-pocket expenses

About 300 cars were gutted in a fire in the parking lot of Yelahanka Air Force base in Bengaluru recently. In another coincidence, 200 cars of Utoo Cabs got destroyed in a fire in Chennai. These twin incidents, however, underline the need for car owners to keep their cars comprehensively insured. 

As their vehicles age, many owners do not buy insurance at all, or only buy the mandatory third-party (TP) cover. They skip the own-damage (OD) cover, that protects owners in case of a fire, to save money. “Buy a comprehensive cover. The actual risks your car faces could be much higher than the risks perceived by you,” says Sajja Praveen Choudhary, head-motor insurance, Policybazaar.com. 

Ensure the insurance-declared value, or IDV (the amount for which the car is insured) is correct. IDV is the manufacturer’s listed selling price minus the depreciation. The registration and insurance cost are excluded from IDV. For the first five years, the depreciation applied is decided by a chart in the Indian Motor Tariff, 2001. For vehicles more than five years old, the IDV is an agreement between the insurer and the insured. Insurers use their own charts, which reflect the market value of the vehicles. However, they allow some flexibility in fixing the IDV. Often, to save money, the customers try to push the IDV lower. This is not advisable. 

Sometimes, the insurers may allow you to keep the IDV constant from one year to the next, if you want. “In case of the models in high demand, the market value does not fluctuate on a year-to-year basis, which is why insurers sometimes allow the IDV to be kept constant,” says Sanjay Saxena, head–motor underwriting and motor claims, Bajaj Allianz General Insurance. Adarsh Agarwal, appointed actuary, Digit Insurance suggests, “Keep the IDV just right. If you increase it beyond the right value, you will end up paying a higher premium. While if you keep it low, in case of total damage, you will get less than the market value.”

In case of total loss, an add-on cover called return to invoice is useful. If a customer has purchased an OD cover, and his car gets gutted, he is compensated the IDV. The IDV keeps on reducing as the years pass. Suppose a car’s invoice value was Rs 5 lakh and its IDV is Rs 3 lakh. In case of total loss, his OD cover will pay him the IDV of Rs 3 lakh, while the return on invoice add-on will pay him the balance Rs 2 lakh (see table for cost). 

A zero-depreciation cover is useful in case of partial loss. While reimbursing you for repairs, the insurers do not reimburse the full cost of vehicle parts. “Insurers apply a deduction to some parts. In case of metal parts, for instance, they may pay 70 per cent of the cost, while the rest may have to be paid by the insured. With a zero-depreciation cover, you can get reimbursed the full cost of the parts,” says Tushar Dhimar, national underwriting manager-retail, SBI General Insurance. This cover can cost you 0.45-1.25 per cent of the IDV. 

In case of a fire, inform the insurer immediately through its call centre or app. “Take a video of the incident if possible, and request onlookers to act as witnesses. Move the car from the site only after the surveyor has done his job,” adds Choudhary.