Buy riders with car insurance policy

Last Updated: Tue, Jun 26, 2012 06:18 hrs

When Priya Baliga saw her new car submerged in rainwater outside her office, her first reaction was to start the engine. This made matters worse, as water entered the engine.

A call to the insurance helpline ensured the car was quickly taken to the garage. But the insurer refused to pay the damage saying her attempt to start the car, even if unintentional, had caused serious damage to the engine.

Joydeep Roy, CEO of L&T General Insurance, says, "Attempting to start a parked vehicle submerged in water is considered a consequential loss and not payable under a normal motor policy." Consequential loss is an indirect loss vis-a-vis losses caused from direct damages such as from an accident.

Damages Covers
Consequential loss Hydrostatic cover
Depreciation on auto parts Depreciation cover
Damage to consumable products Consumable's cover

Ninety per cent of the motor policies purchased are comprehensive, which cover damages caused to the third party as well as to your own vehicle (own damage policies). But riders need to be bought that come handy during the monsoon.

Unfortunately, Baliga's dealer had not advised her to buy riders, which are especially useful in cities where rains lead to clogging of roads.

Many found this to their dismay during the Mumbai rains in 2005. Thousands of cars were submerged and many were washed away. Though the insurers had to reportedly cough up as much as Rs 2,000 crore, several claims were rejected.

Insurers can refuse to pay claims on several grounds. For instance, a car is damaged when parked in the building for long, may be declined a claim as the vehicle has been damaged over time for being submerged in water. Insurers mention in the policy exclusions they have the right to refuse to pay.

Similarly, they can refuse to honour claims if you have been driving through waterlogged areas. Such situations should best be avoided and customers immediately call for an insurance surveyor.

This is where a rider can be helpful. Insurers provide hydrostatic cover, which covers car damages caused due to a consequential loss.

In both the above cases, where the engine is damaged because of water ingression, a hydrostatic rider is helpful. Any direct damage is not covered under this rider. It can cost you between 0.2 and 0.6 per cent of the sum assured of the base policy.

All metallic and plastic auto parts, if damaged due to rains, are not covered under a comprehensive policy. Metallic parts include bonnet, radiator and engine.

But a depreciation rider based on the age of the car and type of components can save a lot of money. If the car's metallic part is damaged within six months of purchase, then no depreciation is deducted. But if these are damaged after six months and before one year, then five per cent is deducted as depreciation. That is, only 95 per cent of the claim will be paid here.

Whereas, all plastic auto parts attract a flat 50 per cent depreciation irrespective of the car's age. The electronic control module (ECM), a system in cars that controls other electrical systems, is most likely to be damaged during the monsoons.

But adding this rider to your motor policy will help you get the full claim amount, as the insurer won't deduct any depreciation. This will cost 0.25 to 1 per cent of the car's value.

Vijay Kumar, president, motor insurance, Bajaj Allianz General Insurance says, "This cover will provide customers with a full refund of the money spent on replacing car parts. Most insurers allow an maximum of two claims in a policy period." Experts say these add-ons help get 95 per cent of your claims.

It also makes sense to use the consumable's rider, which covers damages to consumables such as coolants, gear-box oil and clutch box oil. This will cost another 0.2 to 0.4 per cent of the car's value.

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