In the past three years, motor insurance has witnessed some significant add-ons to improve convenience and become more policyholder-friendly. As penetration of cars increases in India, ,it will be prudent for policyholders to sign up for some add-ons to make the best of the insurance. For instance, in health insurance, several innovations have made it possible to lower the burden of out-of-pocket payments, increase scope of coverage and improve outcomes.

To understand the effectiveness of add-ons, policyholders should be aware of the shortcomings in the base policy in order to secure more protection through add-ons. In the base policy, we include the mandatory third-party insurance — which covers damages to third parties and own damage insurance. Fire, theft, natural and man-made disasters, accidents and transit-related risks are covered in base policies. But in the policy wordings, certain lacunae in protection exist, which expose significant risks, necessitating add-ons. Depreciation, consequential damage and costs allied to a breakdown are such gaps in protection.

Here, we list four add-ons for motor insurance that can improve its effectiveness.

Zero depreciation and Return to invoice

While base policy reimburses damage to the vehicle, it is done so adjusted for depreciation. On the one hand, depreciation limits reimbursement and on the other, market-based inflation drives up the cost of replacement. Rubber and fibre materials depreciate 50 and 30 per cent right out of the gate. For other parts, depreciation starts with 5 per cent by six months and rises upto 35 per cent by the fifth year. These depreciation rates would be doubled in case of a total replacement.

Zero depreciation add-on, as the name suggests, allows reimbursement to be made without deducting any amount for depreciation for parts to be replaced on account of damage from insured perils. The add-on will add 10-20 per cent more to the own damage premium but increases the coverage scope and makes it effective for any accidental damages.

In case of total loss, return to invoice add-on is effective rather than zero depreciation. This cover ensures that full price paid can be reimbursed when the vehicle has to be replaced under an insured peril. Not only depreciation but registration, road tax and cost of insuring the vehicle are reimbursed. The price paid for the vehicle will be the on-road price with this cover. The premium does increase by 10-20 per cent for this add-on. But effectively, vehicle replacement for insured perils can be done without dipping into the pocket.

Engine protection cover

This add-on, which costs merely ₹1,000-1,500, allows for repair or replacement due to consequential damages arising out of water ingression in engines. As stated earlier, consequential damages are not covered in base policy, but flooding is covered. This implies that for a comprehensive protection against risk of flooding, an engine protection add-on may be necessary.

Also, a zero-depreciation cover may not fully protect engines against oil or water leakages. Engine being the core component of a car, this cover may be highly recommended for policyholders in flood-prone areas. Even in case of accidents, on evidence of damage to undercarriage and engine parts, this cover would kick in. But loss related to wear and tear is not covered in base or this add-on.

Roadside assistance

While earlier add-ons address areas out of basic insurance coverage and the costs involved, this add-on addresses convenience of policyholders. Costing less than ₹500 to purchase, this allows the insured to claim four emergency assistance services during the policy period.

These include towing a breakdown/accident vehicle to the nearest garage, provided the breakdown is in insurer coverage network range and the garage is not more than 50 km away. This extends to battery jump start issues as well. Supply of a fuel for a vehicle or even emptying a fuel tank in cases of wrong fuel is arranged for, but at the expense of the insured. Emergencies related to lost keys and locked vehicles are also handled, at the cost of the insurer, on being provided proof of ownership. Arrangement of accommodation, at the cost of insured, is also included. While these services may be arranged easily in an urban setting, at a slightly remote location, these services assume greater importance.

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