Things to know while buying motor insurance

Imagine, just for a moment, you have a car but cannot use it as it is at the workshop recovering from an accident. In that case, you would either have to depend on friends or public transport for your commutes. You might have to incur costs that you may not have planned for.

That is why motor insurance is necessary for protecting not only your investment but also your wallet. The elated feeling that flows in with the purchase of a new car will remain intact for long if the car is secured with insurance.

Many might think that insuring a personal vehicle brings in unnecessary expenses. Even though motor insurance is a widely-known phenomenon in Bangladesh due to government regulations, people still seem reluctant about opting for a comprehensive insurance.

However, as we tend to negotiate the retail price of vehicles at showrooms, we can also compare options and bargain for the right insurance policy. Among a pool of policies being offered by a variety of insurance companies, you can purchase a personalised version that meets your requirements.

In order to purchase the right policy, you need to have particular knowledge on how motor insurance works. It becomes pretty simple if you familiarise yourself with this knowledge. Here are some tips that would come in handy while buying car insurance for the first time.

Get familiar with jargons

Having a firm idea of the common terms used on insurance policies will help you gain a clearer picture of your coverage. Therefore, before you begin searching for the right car insurance policy or insurance company, go through the following list of auto insurance jargons:

First-party (comprehensive) insurance:

The very first thing you will come across when you buy car insurance is your role as a buyer. The owner of the car, who is buying insurance, is referred to as "First Party". Similarly, an insurance company which is insuring the car becomes the "Second Party".

Third-party (TP) insurance:

Third party is any person or an organisation who is affected by the insured car. For example, during a collision, the owner of the other car in question becomes the third party.

Own Damage (OD):

Any damage to the insured car or injuries to the owner of an insured car is termed as "Own Damage".

No Claim Bonus (NCB):

If the owner of the insured car or third-party does not raise a claim in an active policy year, the owner will be entitled for a discounted premium on the next renewal. Moreover, the bonus can be transferred if you have sold your old car and bought a new one.

Full Insured Value (FIV):

The current market value of the car is the "Insured Declared Value" - it includes depreciation.

Add-on/Rider:

Additional coverage options available with a "Comprehensive Car Insurance Policy".

Claim Settlement Ratio (CSR):

The ratio of number of claims settled to the number of claims received in one year by an insurance company.

Claim:

Requesting an insurance company to pay for the insured damage or compensation with respect to the purchased insurance policy.

Depreciation:

Reduction in the monetary value of the car with time.

Understand the coverage of policies

Coverage of third-party insurance

Third-party car insurance is mandatory as per the Motor Insurance Amendment Act 1991 (1938). Third party car insurance is a very common phenomenon for car owners in Bangladesh. Third party is not engaged in the agreement concerning the car owner and the insurance company. 

Insurance coverage confirms that the insurer will compensate the losses incurred by the driver towards losses the driver may bear due to a claim by a third party. It covers only third-party liabilities, which include the following:

• Death: Tk20,000
• Severe injury: Tk10,000
• Minor injury: Tk5,000
• Property damage: Tk50,000

Coverage of first-party or comprehensive insurance

Contrary to third party insurance, a "Comprehensive Car Insurance Policy" provides a wider coverage as compared to a "Third-Party Liability Policy". Along with providing a basic "Third-Party Liability" cover, it provides financial protection for "Own Damage" as well. The coverage of comprehensive motor insurance include:

• Explosion, self-ignition or lighting.
• Robbery, house-breaking or theft.
• Riot and strike including malicious and terrorist activities.
• Tremor (fire and shock damage).
• Flood, typhoon, inundation, cyclone, hailstorm, frost hurricane, storm, tempest.
• Accidental outdoor means.
• Whilst in transit by domestic waterway, lift, elevator or air road, rail.

Moreover, events like theft, fire, self-ignition, natural, and man-made calamities also form a part of the coverage. Additionally, you can customise a policy with the help of add-on covers when you buy car insurance.

What the policies do not cover

Not all the losses or damages are covered by the insurance policies. The following damages or losses are excluded from insurance policy:

• Substantial loss.
• Decline, wear, and tear.
• Mechanical and electrical halt, disaster or fracture.
• When an automobile is used outside the geographical area.
• Driven by an individual other than the driver stated in driver's clause.
• War dangers, nuclear perils, and drunken driving.

Compare the policies

Before you buy car insurance, let it be online or offline, compare insurance policies. Choose similar type of coverage being offered and compare the features being offered by similar insurance companies.

Track your renewals

Once you have bought the right car insurance policy and add-ons, you need to keep track of the renewals, since it is mandatory by law to renew the insurance annually. This is important as timely renewals help in getting a discount on the car insurance premium if no claim is raised against the policy. If you buy car insurance online, it will be easier to track renewals as well.

Some additional tips

• Analyse the conditions being offered by the insurance company for the insurance policy.
• Make sure that the insurance policy covers treatment cost (in case of an accidental injury).
• Verify details of asset security.
• Go through the conditions in which the insurance company covers the losses excluding road accidents.

It is important for the car owner, driver, and passengers to be aware of motor vehicle policies to avoid any kind of loss or damage of assets and life caused by vehicle and natural calamities. Ensure your car's safety and security after buying it. Insurance does not only protect your car, it also protects your and passenger's life and asset. Equip yourself with the basics shared above.

Farzanah Chowdhury is a Chartered Insurer, MD & CEO at the Green Delta Insurance Company.