Personal Finance

All you wanted to know about bumper-to-bumper insurance

Sai Prabhakar Yadavalli BL Research Bureau | Updated on September 04, 2021

Shyam, who is on the verge of buying a car, finds himself discussing more about car insurance than the car itself.

Manohar: So Shyam have you finalised the car you want to buy?

Shyam: Yes, but that seems far easier than deciding on an insurance plan to go with it. The dealer informs me that something called ‘third party’ insurance is mandatory and now a new bumper-to-bumper cover is all over the news.

Manohar: Yes, the Madras High Court has issued an order mandating bumper-to-bumper insurance cover every year, apart from providing cover for the driver, the passengers and the owners of the vehicle for five years. These are to be purchased over and above the third party insurance.

Shyam: How are they different from each other?

Manohar: Well first, you must be aware of mandatory third party insurance which provides cover against liability from damage to third parties. Most motor insurance policies have add-ons available to insure the driver, the owner and the passengers in line with the court order.

Specifically, personal accident policy covers the owner-driver, the paid driver and the passengers.

Shyam: Then, what is bumper-to-bumper cover?

Manohar: In the current parlance, bumper-to-bumper cover is also known as zero depreciation cover. This add-on allows you to cover the parts of a car, except tyres and batteries, against damage. And as the name suggests, no depreciation will be charged onthe value of the car while deciding on the claim amounts.

Any claim without a zero depreciation add-on is settled by adjusting for the wear and tear of the part captured by the depreciation charge. This makes the cost of replacing that part higher. Bumper-to-bumper insurance can land a claim amount closer to the actual value without depreciation. However, this policy does not cover engine damage caused by water ingress and oil leakage.

Shyam: So, what should one expect?

Manohar: Well since the order has been passed only recently, there is not much clarity on how it will be implemented.

The court itself has placed the order on hold as insurers asked for time to design an appropriate product. For one, the issue of buying the cover upfront for five years has to be clarified. The pricing and the availability of such a comprehensive product too will be something to watch out for.

Shyam: Seems like we have to wait and watch for more clarity on this.

Published on September 04, 2021

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