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How to Read Your Policy Wordings

An insurance policy defines the scope of an insurance cover.

  • 05 May 2016
  • 3 min read

It isn't new to see consumers face bitter resentment on having claims rejected or on realising that the insurance cover opted for is inadequate to meet their crisis requirement. Such scenarios arise mostly when it is too late for any corrective action. This harbours negative feelings of distrust towards the insurance provider.

What needs to be realised is that the insurance company is merely following the details mentioned in the claim policy, which the insured had willingly signed. To foster mutual trust and better understanding, it is extremely important to know how to read your policy wordings before accepting the deal.

Here are a few such clauses that are instrumental in shaping your motor insurance policy. These have been simplified to help you make an informed decision:

1. Damage To The Vehicle Insured

While reading your policy, pay special attention to the items mentioned in this list. The insurance company will only compensate you if your vehicle entails a loss or is damaged due to the conditions mentioned under this section.

2. IDV (Insured Declared Value)

The sum insured depends on your Insured's Declared Value (IDV). This is simply calculated by deducting depreciation from the manufacturer's sale price. The depreciation rates are fixed by the Insurance Regulatory and Development Authority of India (IRDAI). As your vehicle ages, the sum insured is reduced due to its depreciation.

3. Liability To Third Parties

Third party liability cover is a statutory requirement under the Motor Vehicles Act. It safeguards the interest of the third party that might be affected due to an accident caused by you. In such a scenario, the insurance company will compensate for the loss caused by the insured vehicle. Third party covers do not compensate the driver-owner for damages to the insured vehicle.

Also read:

4. Injury & Compensation

The sum insured depends upon the nature of injury. For example, a loss of one limb or sight of one eye entails 50% of compensation whereas loss of both limbs entails 100% compensation. Peruse the table of compensation for a better understanding of what is eligible and what is not.

5. No Claim Bonus

Insurance companies provide an incentive to the insured party if a claim is not raised in the specified period. Known as 'No Claim Bonus', this monetary benefit is received as a discount on the premium to be paid for the next period. For instance, no claim made during a year may lead to a discount of 20% of premium for the next year. 

Note: An add-on 'No Claim Bonus Protect' helps to safeguard accumulated bonus even if one makes a claim during a particular year.

6. Add-ons

Add-ons are not included by default in a policy. These critical packages are optional and provide extra benefits. Make a note of the add-ons that the company is providing and chose ones that would add value to your car insurance experience.

Read the policy wordings carefully and understand them by matching the benefits of the policy with your insurance needs.

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