Vehicle sales are on the rise. The festival season is leaving its imprint on auto sales with record numbers being sold in September —which reported a 20 per cent YoY growth. Car and two-wheeler purchases have been making new highs since the end of Covid, as mobility options are being prioritised. As the festival season progresses, the industry is expecting a bumper harvest in auto sales.

As prospective buyers narrow down on the relevant model of cars and two-wheelers, they should look out for the right insurance policy to protect their ‘asset’. In the excitement of purchase, it’s easy to put motor insurance decision on the back-burner or to go with the most easily available option. As with any investment, insurance purchase can have positive pay-off in the long run if exercised with due care. Here we list three basic considerations to keep in mind while buying motor insurance.

Online cost ignores settlement troubles?

After a winding sales pitch on the vehicle, the accessories and the financing options, the dealer-salesman moves onto insurance. In a classical case of mental (mis)representation bias that our minds play, compared to what is being spent for the vehicle, the insurance amount seems small — and hence affordable and a mere rounding-off error. This makes it a hastily signed-on option.

But if one were to assess the cost in a more relaxed setting, it is possible one may reconsider the amount spent on insurance offered by the dealer. It can be vaguely generalised that insurance offered by a tie-up is typically higher than the cost compared to online insurance. But that is not to say it can be written off.

While online insurance can be easy on the pocket, the insurance purchased based on a relationship (at the point of sale) can have improved outcomes during a claims experience. Essentially, the purchase decision between online or point of sale purchase should be a trade-off discussion between cost of purchase and a smoother claim experience. Either of the points cannot be generalised or measured. Online insurance may also offer paperless (hence faster) verifications for claims less than ₹50,000 and when pressed for choices and negotiated with, a point-of-sale insurance can be affordable. This would depend on the insurer, the dealer tie-ups, and awareness of the buyer.

While not a pointer for either, a policy buyer should be aware of cost and benefit trade-offs and make an informed decision.

Carefully choose base policy

Third party cover is legally mandatory for three to five years initially. This only covers, as the name indicates, third party damages. Any damage to the vehicle or the driver is not covered by the policy. Theft, natural calamity damage, road accident or other damage (excluding natural wear and tear) to vehicles are covered by own damage (OD) covers and hence are also essential, though not mandated by law.

Even for those who drive a lot, accidents are simply that and should be covered by own damage policy as well. Natural disaster coverage in OD is also becoming highly critical with crowded urban centres, which are quite often prone to flooding and vehicles face damage from being parked in a low-lying area, including basements. In case of flooding, please remember to not switch on the engine until completely dry or risk flooding the engine, which will then not be covered in insurance. Also, at the time of insurance, it is helpful if the IDV (insurer declared value) is at the highest possible. This ensures that even as value depreciates year after year, the starting value is higher.

Pick a few add-ons

Customisation of motor insurance improves the use case of the product. Zero depreciation is a popular add-on in vehicle insurance. When a claim is paid for any damage, depreciation is applied to the amount. But as the policyholder must bear the cost of a new part, irrespective of depreciation, this add-on eliminates depreciation and reimburses the full cost of the damage. A similar variant to Zero depreciation is return to invoice add-on. In case of total damage or theft, a return to invoice ensures that policyholder is reimbursed to the extent of the invoice, without depreciation and including registration and road taxes.

For policyholders with a rarely used vehicle, switch-on/off insurance policies are also available (not an add-on but an option). These allow for the policyholder to ‘switch-on’ insurance only when in use, which ensures a cost-optimised insurance cost according to the usage.

Depending on the use, one can opt for engine protection, key & lock insurance or other options. For chauffeured owners, paid-drivers insurance or other options are also available.

Why?
Point of sale and online involve cost benefits trade-off
Own damage as critical as third party
Customisation with add-ons can add value
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