Imagine for just a moment that you didn't have your car because it was at the mechanic’s workshop due to a horrid accident. In that case, either you would have to depend on friends and public transport to get to work or your desired destination, or you might have had to incur costs that you may have not planned for. That's why motor insurance is necessary for protecting not only your investment that’s already made, but also your wallet.
The elated feeling with the purchase of a new car will remain intact for long if the car is secured with insurance. It is a widely believed myth that car insurance is an unnecessary expensive expenditure. Even though motor insurance is widely-known phenomenon in Bangladesh due to government regulations, people still seem reluctant about opting for comprehensive insurance.However, just as you negotiate with the dealer for the on-road price of your car or compare various options while buying it, you can do the same with car insurance. You can buy a tailor-made policy as per your needs. But buying the right policy requires basic knowledge of how car insurance works. It becomes pretty simple if you familiarise yourself with this knowledge.
February 1 is observed as the International Car Insurance Day globally. On this occasion, I am sharing some tips that would come in handy while buying car insurance for the first time.
Tip #1: Get Familiar with Jargons
Understanding commonly-used terms used on the car insurance policy will help you know your coverage better. 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 affected by the insured car, say, in an accident. For example, during a collision, 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. Also, it is possible to get this bonus transferred if you have sold an old car and bought a new one.
• Full Insured Value (FIV): The current market value of car is the Insured Declared Value. IDV 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 claim 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.
Tip #2: Understand the Coverage of Different Types 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 in Bangladesh is a very common phenomenon for the car owners. Third party is not engaged in the agreement concerning the car owner and the insurance company. Insurance coverage confirms that the insurer will compensate 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: Tk. 20,000
• Severe Injury: Tk. 10,000
• Minor Injury: Tk. 5,000
• Property Damage: Tk. 50,000
Coverage of First Party or Comprehensive Insurance
Contrary to third party insurance, 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 includes:
• Explosion, self-ignition or lighting
• Robbery, house-breaking or theft
• Riot & 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
Plus, events like theft, fire, self-ignition, natural and man-made calamities also form a part of the coverage. Additionally, you can customize a policy with the help of Add-on covers when you buy car insurance.
What the Policies Don’t Cover (Policy excludes)
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 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
Tip #3: Compare the Product Offerings in the Market
Before you buy car insurance, let it be online or offline, compare insurance policies. Choose similar type of coverage offered and compare various features offered by the company.
Tip #4: Track Your Renewals
Once you have bought the right car insurance policy and add-ons, you need to keep a track of the renewals, since it’s 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.
Tip #5: Some Additional Tips
Important things you should know before buying car insurance policies:
• The conditions in which the insurance company is giving insurance policy
• Be sure about the insurance policy covers treatment cost in case of accidental injury
• Details of asset security
• In which conditions the insurance company covers the losses excluding road accidents
It is important for the car owner, driver and passengers to be aware about motor vehicle policies to avoid any kind of loss or damage of asset 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, but also the life of you and your passenger. Equip yourself with the basics we shared above then buying insurance will be effortless each and every time! Hope you are not confused or unclear about the jargons and basics we explained above or about the kind of coverage best suits your needs.
Ms. Farzanah Chowdhury
Chartered Insurer MD & CEO, Green Delta Insurance Company