Car Insurance

A-to-Z of Car Insurance Terminologies

By Admin
Apr 12, 2021

You have brought your dream car and the ideal car insurance for it after a lot of research. You might have compared multiple policies online before making the final deal. However, once you get the insurance documents, you realise that the jargon used is not that easy to understand. Should you sign the dotted line or not?

There are a lot of terms that you might not understand but definitely should so as to truly understand what the papers say. To help you out, we have compiled a glossary of all the terms that you should know and will help you with understanding what the files say.

A-Z of car insurance terminologies!

Accessory – It is the equipment attached to the car that does not affect the performance of the car or cause any fundamental change in the design.

Actuary – They can be called risk mathematicians because they are capable of calculating the financial consequences of the possible risks involved in an insurance policy. These are the professionals that calculate the cost of expenses that the company will have to pay during the event of an accident or theft or anything else. Based on the risk analysis done by these actuators, the insurance company decides on the price of the premiums.

Add-ons – These are the additional coverage that you can include in your car insurance policy while buying it. More often than not, you cannot add such add-ons during the middle of the term. Also, such additions increase the price of premiums.

Bumper-to-bumper cover – As the name suggests, this cover provides compensation for all the expenses related to any damages on the car from the front bumper to the rear bumper. In simple terms, it is the maximum coverage you can avail.

Breakdown assistance – It is a simple add-on option for policyholders where they can ask the insurance company to send in help during the breakdown of their car. This way the policyholder will not be left stranded during such an event.

Claim – A claim is an official request raised by the policyholder of an insurance policy in order to get compensation for the expenses incurred by him/her. In most cases, only the policyholder is entitled to do this but in certain cases, a nominee can do that.

Comprehensive coverage – This is a type of car insurance that not only provides compensation for your own car and personal life but third-party liabilities as well. Moreover, it provides cover against damages done due to natural calamities, fire, theft, vandalism, collision and more.

Claim settlement – It is the process of settling the claim made by the policyholder, and this can be done in two ways. One is the cashless method where the claim is settled as and when the repair work is done. This can only happen at garages that are authorised by your insurance service provider. The other method is the reimbursement method where the policyholder will have to pay out of his/her own pocket initially and then wait for a few days to get the settlement done by the insurance company.

Claim Settlement Ratio – It is the ratio between the number of claims raised in an insurance company and the number of claims settled by them over a period of time. The better the ratio, the more reliable the company will be in terms of claim settlement.

Consumable Cover – It is the add-on cover provided for spare parts like nuts, bolts, engine oils and more in the event of an accident.

Contributory negligence – It refers to the damages done on the vehicle due to the negligence of the policyholder. It mainly revolves around not following the traffic rules and rash driving.

Consequential damage – If your car gets damaged without getting directly involved in an accident but as a result of something else, then it is called consequential damage. Most companies do not provide cover for this. A simple example would be of you driving your car after it has been vandalised, and the engine failing at this point. The policyholder will have to bear the expenses out of their pocket.

Deductible – It is the minimum amount that the policyholder has to pay from his/her pocket before making the claim. A small part of the expenses incurred has to be paid by the policyholder itself. There are two types of this - compulsory and voluntary deductibles. Compulsory deductibles are determined by the size of the engine of the car and it is a fixed amount. Voluntary deductible can be increased, as per the wishes of the policyholder. The higher the deductible amount, the lesser will be the premium.

Depreciation – It is the overall diminishing value of the car over the years. It is calculated based on the model of the car, manufacturing date, the length of time it has been used and the overall condition of the car. The calculated value of the car is what is paid to the policyholder during an event of theft or loss or irreparable damage done to the car.

Damage/loss – It is the result or the impact of the incident done to the insured car. It can be due to fire, accident, theft, natural calamities, vandalism and more, as per the terms and conditions of the policy. Loss is the monetary payment that the insurance company has to pay the policyholder.

Effective Date – It refers to the date from which the car insurance is brought into effect.

Exclusion – These are the situations/events that are not included in the coverage provided by the company. There will be no compensation given for such damages. A prime example would be damages that occurred while drunk driving.

Endorsement – This is the official statement or paperwork that mentions the addition or removal of any benefit in the insurance policy.

Extended Coverage – It is the extension of the policy to a certain period of time by including an add-on in the existing policy.

Grace Period – It is the maximum amount of time given by the insurance company to the policyholder to renew the policy. It starts from the due date and goes on till the date predetermined by the company. The length of this period varies from company to company, and also depends on the type of insurance policy you have.

Insured Declared Value – IDV is the highest possible amount that the insurance company is ready to pay as compensation during an event of theft or loss of your car or it is damaged beyond repair. Also, if there have been any modifications done to the car then the IDV will be again calculated for them separately.

IDV = (Manufacturer’s listed price – Depreciation) + (Cost of accessories – Depreciation)

Lapse – If the policyholder fails to renew the policy on time, the policy will lapse and will no longer be able to enjoy any of the benefits. A lapse in the policy discontinues the services of the policy.  In such an instance, the policyholder will most likely lose the No Claim Bonus as well, if there was any.

Letter of Experience – It is basically a letter that involves the details of your past performance with the previous insurance provider. It will have the analysis of how you managed the policy previously, the credit score, the claims made and so on. It works as a letter of recommendation for the next insurance company.

Limit – This is the cap that states the maximum amount of money that the insurance company can give you as compensation. If your claim is under that limit, it will be settled. The higher the limit, the higher will be the premiums.

MVR – Motor Vehicle Record gives the track record of the policyholder. It involves information on the number of times that the policyholder has been called in the court for breaking traffic rules or paying related fines, the driving record, driving license information and more.

Natural Calamities – These are the events that occur due to natural causes where humans do not have any say. These dangerous events can be cyclones, earthquakes, hurricanes and more.

No Claim Bonus – It is the reward given by the insurance company to the policyholders if they manage to make not even a single claim in a year. In such a case, the policyholder will get a discount on the next year’s premiums. This benefit can be carried to a different policy as well, even if you change the parent company.

Network garages – These are the garages that are part of the network of the insurance policy companies where the policyholder does not have to make any payments at the time of settlement. The company directly pays such garages and hence they are often called cashless garages as well.

Own Damage Policy – This is a type of car insurance policy that provides cover for all the expenses related to damages done to the policyholder’s car. It can be due to collision, natural calamities, vandalism, fire, etc. No expenses related to third-party are included in this.

Policy Period – It signifies the time period for which the policy holds its value.

Policy Document – This is an essential piece of document for any car insurance policy as it has all the necessary information related to your plan. The extent of coverage, breakdown of premiums, situations covered under the policy and the exclusions are some of the major nuggets of information that this document has. Also, this is the document that you will have to submit while making a claim.

Personal Injury Protection – This is a special feature of certain car insurance policies that states that the insurance company will have to pay for the hospital expenses of the insured if he/she meets with an accident. The expenses will be covered irrespective of the party at fault.

Personal Accident Cover – This cover gives compensation to the insured if he/she undergoes some disability due to an accident. It is stipulated by the IRDAI and hence is a mandatory cover that every policyholder is supposed to buy. If the insured dies in the accident while driving the insured car, his/her family (nominee) will get compensation of up to INR 15 lakhs.

Premium – It is the amount of money that a policyholder pays to enjoy the benefits of an insurance policy plan. More often than not, these premiums are paid on an annual basis.

Passenger Cover – It is an add-on that policyholders can include in the plan in order to get compensation for the expenses incurred due to the bodily injuries sustained by the passengers during an accident. This is a good option to consider for people who often travel with their family.

Quote – This is the approximate amount of money that a person needs to pay to avail of the benefits of an insurance policy. The accuracy of the quote amount will depend on the legitimacy of the information given by the user. Note that the actual amount of the premium will vary in most cases.  

Return to Invoice – This is a helpful add-on to have that gives the policyholder the entire amount of money mentioned initially in the invoice of the insured vehicle. Even the registration fees and road tax are included in this. The policyholder gets this amount during an event of theft or loss of the car.

Renewal – It refers to the process of renewing the policy by the policyholders, once the existing term is about to end. It is important to note that this has to be done before the due date or the grace period ends.

Replacement Cost – As the name suggests, it is the cost involved in replacing or pairing the insured damaged car back to the original condition. The depreciation in the market value of the insured vehicle is not considered during the evaluation of the replacement cost.

Repairs – These are the repairs that occur due to collisions, vandalism, strikes, natural calamities and more, which are covered under the policy.

Risk – It talks about the possible adverse situations that will cause the insurance company to provide compensation.

Surcharge – It is the additional amount of money that the policyholder might have to pay if the insurance company finds any compromising behaviour from his/her end. For example, if you are repeatedly breaking traffic rules on the road, thus getting involved in accidents, then the insurance company can levy money from you. This naturally increases the amount of premium.

Third-party – It is the entity in the policy that is not the policyholder. Simply put, it is the other vehicle’s owner involved in a collision.

Third-party coverage – It is a type of insurance that gives cover to the policyholder against all expenses related to third party liabilities, be it their vehicle, bodily injury or property. This is often called liability coverage as well.

Traffic violation – It is the act of now following the traffic rules that are in place.

Tyre protect cover – It is the add-on that helps the policyholder get cover for losses incurred due to the bad condition of tyres. It is valid under all circumstances unless the tyres have been deliberately damaged.

Underwriter – This is the professional who analyses the risk involved for the company in insuring a particular individual. Based on the evaluation, the underwriter comes up with the premium amount, which the individual will have to pay to become a policyholder. This process of evaluation is called underwriting.

Zero depreciation cover – It is the add-on that throws the factor of the depreciation out of the window. While coming up with IDV, the insurance company would not consider depreciation, hence improving the compensation for the policyholder in case of theft or loss of his/her car.

Conclusion

These are the major car insurance terms that you must know to truly understand what the policy gives you. This not only helps in comparing different policies online but also helps in making any legal settlements if required. You will never be in the dark in such a situation, which is exactly what is needed.

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