BASIC AND IMPORTANT QUESTIONS ON MOTOR INSURANCE

Q. What is Motor Insurance?

A. Motor Insurance provides insurance cover for owners of vehicles (private cars, two wheelers and other vehicles against financial
loss arising out of accident or theft). Broadly, there are two types of motor insurance - the 'Act only' policy and a ‘comprehensive
policy’. The scope of the 'Act only' policy is to pay compensation for death or any bodily injuries and for damage to property of third
parties. It also includes Personal Accident Cover for owner driver.
Q. What is a comprehensive policy under Motor insurance?
A. A comprehensive insurance policy comprises two covers—own damage (OD) and third-party (TP) cover. ‘Own Damage’ cover for
the loss of damage to the insured vehicle itself and ‘Third Party’ cover is for any person other than Insured and Insurer.
Q. Who can take Motor Insurance?
A. Any vehicle owner (whose vehicle is registered in his/her name with the Regional Transport Authority in India) can take Motor
Insurance Policy.
Q. How to fix the sum insured for a vehicle?
A. The sum insured of a vehicle in a Motor Policy is referred to as the I.D.V., which stands for ‘Insured's declared Value’. In case
of theft of vehicle or if the vehicle is totally damaged and beyond repairs in an accident, the claim amount payable will be determined
based on the IDV.
Q. What is IDV? How is it fixed?
A. In simple terms, IDV refers to the current market value of vehicle proposed for insurance. Declared Value of the vehicle is to be
fixed based on manufacturer's listed selling price of the brand and model of the vehicle at the commencement of insurance / renewal
and adjusted for depreciation as per schedule. IDV of vehicle which is beyond 5 years of age and of obsolete models of the vehicles
(i.e. models which the manufacturers have discontinued to manufacture) is to be determined on the basis of an understanding
between insurers and insured. Precisely, IDV is largely based on the 2 parameters: Ex-showroom price and Depreciation. The
formula looks like: IDV = Ex- Showroom price – depreciation (as given in the table)

Thus, IDV is the maximum amount that an insurance company will pay in case of a claim. This would be in the event of:
a) Total loss -the vehicle is no longer capable of running on the road due to damage by natural calamities or accident.
b) Constructive total loss: The total cost of retrieval and/or repair of the vehicle is greater than 75% of IDV.
c) Insured vehicle is stolen.
Q. Since IDV is fixed on the basis of manufacturer's listed selling price and based on understanding between insurer and
insured (5 years old or obsolete model), why is it called Insured’s Declared Value?
A. It is called Insured’s declared value, because ultimately it is the insured who owns the responsibility for deciding the Sum Insured
(SI) based on the IDV of the vehicle. Precisely onus of deciding the IDV and hence SI lies on the insured and is held responsible for
fixing inaccurate Sum Insured. Some insureds’ tendency is to keep the Sum Insured lower so that lower premium is paid, but in case
of total loss/ CTL/ theft of loss the insured may dispute the claim amount which is lower than the actual loss. It must be noted that
IDV is the maximum possible claim amount that the insurer will pay as compensation depending on the type of loss.
Q. Why insured should insist on accurate IDV?
A. If a person declares a lower IDV than the reasonable market value and after accident or theft, happens to make a claim for total
loss, one would receive a lower claim amount since the IDV declared was lower. A little saving on the premium by declaring a lower
IDV can result in much higher loss in an unfortunate event of substantial damage or theft of the vehicle. If insured declares a high
IDV in hope of a higher claim than deemed fit by the surveyor, then the insurer, will consider all the factors -age of the car, value of
the car at the present time, and process the claim accordingly. So the insured will not get the claim amount he was hoping for, in
spite of paying a higher premium.
Q. Which losses are covered under Motor Insurance?
A. Motor insurance deals with the following losses due to use of vehicle: -
1) Loss or damage to vehicle itself,
2) Loss owing to theft of vehicle or part thereof,
3) Financial loss due to accidental injury / death of third party,
4) Financial loss due to property damage of third party,
 5) Any cost and expenses incurred with Insurer’s consent.
Q. Which are the various types of Motor Vehicles?
A. Motor vehicles are broadly classified into following three categories-
1) Private cars: used for social, domestic, pleasure & professional purposes;
2) Two wheelers: used with or without side car for the above-mentioned purposes;
3) Commercial Vehicles: refers to all other vehicles (excluding vehicles running on rails)
Q. What is a commercial vehicle? How commercial vehicles are classified from motor insurance point of view?
A. In context of Motor Insurance any vehicle other than private car and two-wheeler falls in the category of commercial vehicle. Such
vehicles can be of three types:
1) Goods Carrying Vehicles:
a) Private carriers –carrying own goods
b) Public carriers – carrying goods for hire or reward
2) Passenger Carrying Vehicles: used for hire or reward (buses, Auto rickshaw, Taxies etc.)
3) Miscellaneous & Special type of vehicles: agriculture tractors, ambulances, cranes, dumpers, fire brigade,
bulldozers, break-down vehicles, excavators, cinema film recording & publicity vans, mobile cinema, road rollers,
dispensaries etc.
Q. Who is third party?
A. Any person other than Insured (first person) and Insurer (2nd person) is a third party. It can be a person traveling in another
vehicle, one walking on the road or a passenger in the insured public vehicle itself. The pillion rider of the motor cycle,
passengers in private cars, jeeps etc. are not third party. However, passengers in public vehicle such as bus, contract carriage
vehicle, taxi etc. are also third party and hence covered by third party or ‘Act only’ cover.
Q. Why ‘Act only policy’ is known as 'Motor third-party' cover or insurance?
A. It is referred to as a 'third-party' cover since the beneficiary of the policy is mainly someone other than the two parties involved in
the contract i.e. the insured (first party) and the insurance company (second party). Presently, PA Cover for owner driver is also part
of this policy.
Q. Is Motor or Auto Insurance Policy mandatory (compulsory)?
A. Only Motor ‘third-party insurance’ or ‘third-party liability cover’ is mandatory by law, whereas ‘Own Damage’ or Comprehensive
Insurance is not mandatory.
Q. Why 'Motor third-party' insurance is mandatory (compulsory)?
A. Motor third-party insurance or third-party liability cover is a statutory requirement under the Motor Vehicles Act.1988.
Q. What is the rationale behind making motor third party insurance compulsory?
A. As sometimes the driver of the vehicle is often a person of small means and injured person goes without adequate
compensation, insurance of motor vehicle covering the third-party risk is made compulsory in India. Motor Vehicles Act 1988
provides that, vehicle should not be used in public place without having insurance policy covering third party risks.
Q. What are the provisions under Section 146 of Motor Vehicle Act 1988?
A. This Section deals with the necessity for insurance against third party. Section 146 of Motor Vehicles Act.1988 seeks to protect
public travelling in vehicles or using roads (public place) from financial liability caused by risks arising from use motor vehicles
on the roads by making third party insurance compulsory for users of motor vehicles.
Q. What may be the consequence if a person drives car on public road without any insurance?
A. It will be considered as contravention (breach) of the provisions of Section 146 of Motor Vehicles Act.1988, which is an offence
and is punishable with imprisonment which may extend to three months or with fine which may extend to one thousand rupees
or with both.
Q. What type of liability may arise for insured due to motor accident?
A. After motor accident involving third person, two types of liabilities may arise: (1) criminal liability and (2) civil liability. For criminal
liability, it is the state that initiates proceedings which may result in imprisonment. Regarding civil liability, the victim has to initiate
action by filing a suit in the court of law for demanding compensation from the insured.
Q. What is limit of liability for damage to third party property under Motor Vehicles Act?
A. The limit of liability for damage to third party property under Motor Vehicles Act is Rs.6,000. Third party property damage is
covered up to a sum of Rs 7, 50,000. The Insured has the option to restrict coverage for Third Party Property damage to Rs 6,000
and this will result in a lower ”Liability Only” premium.
Q. Is ‘Personal accident cover’ to owner driver an inbuilt part of Motor Insurance? If yes, is it covered under ‘Own Damage’
or ‘Act Only’ Policy?
A. Yes, Personal accident cover to owner driver is an in-built component of ‘Act Only’ Policy (‘Third Party Insurance’) and hence it
becomes a part of Motor comprehensive policy.
Q. What are the rules for issuing ‘Personal accident cover’ to owner driver? Can it be issued for all the vehicles?
A. This cover is provided to all individually owned vehicles only. Vehicles Registered in the name of a company or organization are
not eligible for this cover.
Q. Whether a person, who is not the owner of the car nor the paid driver, be compensated under ‘Personal accident cover’
to owner driver?
A. Any person (other than paid driver) driving the vehicle with the consent of insured will also be covered as if insured under the
relevant section covering ‘Personal accident cover’ to owner driver in third party cover.
Q. What is limit of liability for death or bodily injury of passenger in a public service vehicle?
A. The amount of liability for death of or bodily injury to passenger in a public service vehicle is unlimited.
Q. Is it necessary to carry Insurance Policy always while driving a car on road?
A. No, only a certificate of insurance can be carried in vehicle. Certificate of insurance is a document issued by the insurance
company as an evidence of the insurance.
Q. What is Certificate of Insurance and what is the significance of this certificate?
A. The Motor Vehicle Act provides that the policy of insurance shall be of no effect unless and until a certificate of insurance in the
form prescribed under the Rules of the Act, is issued. The only evidence of the existence of a valid insurance as required by the
Motor Vehicle Acceptable to the police authorities and RTO is a certificate of insurance issued by the Insurer.
Q. What is the rule and procedure for transfer of motor insurance policy and ‘Certificate of Insurance’?
A. Section 157 of the Motor Vehicle Act (1988) lays down that when the owner of vehicle transfers the ownership of the motor
vehicle to another person, the certificate of insurance together with the policy described therein shall be deemed to have been
transferred in favour of the new owner of the vehicle with effect from the date of transfer. Sub-section (2) requires the transferee to
apply within fourteen days from the date of transfer to the insurer for making necessary changes in the certificate of insurance and
the insurer is obliged to make such changes in the said documents to give effect to the transfer of insurance.
Q. If an Insured is selling his vehicle, can he transfer his policy to the new owner?
A. If an insured sells his car or two wheeler to another person, the insurance can be transferred in the name of the buyer. The buyer
(transferee) has to apply for transfer of insurance with the insurance company within 14 days from the date of transfer of the car in
his name and after making the payment of endorsement premium for the remaining period of the policy.
Q. What is a Cover Note?
A. A cover note is an interim (provisional) cover of insurance issued by the Insurer before the issuance of a policy, after the Insured
has given a duly filled in proposal form and has paid the premium in full. A cover note is valid for a period of 60 days from the date of
issue of the cover note and the Insurer shall issue the Certificate of Insurance before the cover note expires.
Q. What is Policy?
A. Policy is the legal document issued by an insurance company to a policyholder, which outlines the conditions and terms of the
insurance. Policy is the written contract ( duly stamped) effecting insurance including all clause, riders, endorsements, and papers
attached thereto.
Q. How ‘Motor Third Party’ premium is charged in Indian Insurance Market?
A. Third party premium is fixed and reviewed by the insurance regulator (IRDAI) and depends on the types of vehicle and the cubic
capacity of vehicle proposed for insurance. Below are the third party insurance premium rates for vehicles effective from April 1,
2018.

Q. What are the factors that affect insurance premium?

A. Following are the factors which determine insurance premium:
1) Insured Declared Value (IDV): Motor insurance is a type of indemnity policy where the total compensation is directly
linked with the value of your vehicle, based on its age and model. The Insured Declared Value is the maximum amount
that insured can claim under a policy.
2) Cubic Capacity: Premium calculations taking into account the cc of your car’s engine are divided into 3 slabs:
a) cc less than 1000cc
b) cc between 1000-1500cc
 c) cc above 1500cc
3) Geographical location: Geographical location is significant for determing car insurance premium.
For Private Cars, two wheelers and small commercial vehicles (up to 6 passengers) India is divided into 2 zones:
Zone A comprises cities like Mumbai, New Delhi, Bangalore, Chennai, Kolkata Ahmedabad, Hyderabad and Pune.
Zone B includes the rest of India. (Zone A cities have a higher premium than cities in Zone B).
For all other vehicles, India is divided into 3 zones:
Zone-A: Chennai, Delhi / New Delhi, Kolkata, Mumbai
Zone-B: All other State Capitals
Zone-C: Rest of India
4) Age of the vehicle: With time, as the vehicle depreciates in value, insurance companies offer lower premium as the
insurance cover gets reduced proportionally. If car is more than 5 years old, then the insurance company decides on the
cost of your car based on its condition, before determining the final premium amount.
5) No Claim Bonus (NCB): NCB can be upto 65% (as per sun set clause) based on number of claim-free years you ensure,
thereby reducing your premium costs substantially.
6) GVW (gross vehicle weight) : the higher the GVW, the more will be the premium in case of commercial vehicles.
7) Add on Covers: additional premium is charged on various ‘Add-on Covers” if taken along with standard Motor Package
Policy.
8) Safety Devices: If more safety devices installed in a car (like airbags, advanced braking systems, robust locks and anti-
theft devices) then less insurance premium will be charged.
9) Other factors: There are other additional factors considered for insurance premium calculations- Installation of anti-theft
devices, being registered members of some automobile associations, type of Fuel Used (Petrol/Diesel/CNG/LPG).
Q. What is contractual liability?
A. Contractual liability is the obligation or liability that the policyholder has assumed by entering into a contract of any nature.
Insured might have signed a contract containing an indemnity agreement - a promise by one party to assume liability on behalf of
someone else. In a typical indemnity agreement, Party X (transporter) agrees that if Party Y (consigner) is sued by Party Z (a
member of general public) because of Party X's negligence, Party X will indemnify (reimburse) Party Y for costs that result from
Party Z's lawsuit. An indemnity agreement is also called a hold harmless agreement. It can be the liability arising if either party to
the contract fails to perform in accordance with the terms, otherwise known as a breach of contract.
Q. What are Add-on covers?
A. By paying little extra premium, an insured can avail some additional benefits under motor (auto) insurance. These additional
covers are called Add-on covers and are optional. Such covers are available for Private Cars (PC), Two Wheelers (TW) and
Commercial Vehicles (CV). Some of these covers are as under:
1) Personal accident covers under private car policies for:
a. passengers
b. paid driver (owner driver is automatically covered in the standard motor insurance policy)
2) Legal liability to employees.
3) Legal liability to non-fare paying passengers in commercial vehicles (fare paying passengers are covered in the
standard motor insurance policy)
4) Loss or damage to accessories fitted in the vehicle such as stereos, fans, air-conditioners etc.
5) Nil Depreciation Cover (for PC, TW & CV): This cover relieves the customers from bearing the depreciation of 5% - 50%
on various parts (metal, plastic, fiber or rubber) in the event of loss due to accident- in case of partial losses.
6) Inclusion of Road Tax Cover (for PC): The cover provides protection against the Road Tax (to the extent covered) that
insured may have to pay while replacing the car due to major accident to his present car. The cover is available for Private
Car up to 5 years of age.
7) Return to Invoice (for PC): This cover is available up to 3 years old car, and allows the insured to be indemnified towards
the difference between the IDV of the vehicle as per policy and the dealer listed selling price (Ex-Showroom price) of same
make and model on the date of accident at the place of registration of the vehicle. This cover is available for cars with
Invoice price up to Rs. 20 Lakhs.
8) NCB Protection Cover (for PC): The cover allows customer to be entitled to the next slab of No Claim Bonus seven after
payment of an OD Claim. The cover is valid up to 2 admissible OD claims and available for Private cars up to 7 years of
age. The cover will ensure saving of OD premium in range of 20%-50% at the time of renewal, except where insured takes
more than 2 OD Claims during the policy period.
9) Engine Protect Cover (for PC): This cover provides protection against any consequential losses to the engine and its
parts due to ingress of water due to any reason, thus indemnifying losses to Engine of insured car on water logged roads
in monsoon. The cover is available up to 5 years of age of the car. Some insurers offer Engine and Gearbox- This cover
 applies to the damage incurred by the engine or gearbox of the insured vehicle due to water uptake, lubricating oil
leakages or other issues arising from accidents.
10) Additional Towing Charges (for PC): This extension provides increased towing charges as it allows reimbursement of
towing charges up to Rs.10, 000 in 2 admissible claims for private Car. The cover is available up to 7 years of age. This
cover is over and above the normal payable towing charges of Rs. 1500, which is provided with a standard package
policy.
11) Loss of Content Cover (for PC) : The cover allows protection up to Rs.20,000 with a cap of 20% of sum insured(up to
Rs.4000) for each individual item or actual value of lost item, whichever is less for the loss of personal belongings (such as
clothes and other articles of personal nature likely to be worn by the insured including jewelry, vehicle key, mobile, laptop,
audio/video tapes, CDS but shall exclude money, securities, cheque, bank drafts, credit/debit cards, travel tickets,
paintings, curios and items of similar nature) in an accident. The cover is available up to age of 7 years of your car.
12) Emergency Assistance Add On- Add-On cover plan is to increase the protection accorded to the customers and
decrease the financial liabilities faced by them in cases of accidents or permanent loss of the vehicle. The scope of this
add on cover (given by HDFC ERGO) is as under:
a. Duplicate Keys- If keys are lost, a new set of keys are delivered to the insured’s residential address.
b. Locked or Lost Keys- Helping you gain access to the locked in keys, including such measures as breakage of glass or door
bending (with your permission, of course). In case of lost keys, the vehicle will be towed to the nearest safe location, while a
new set of keys must be arranged by the customer.
c. Battery Jump Start- Arrangement for jump starting a dead or malfunctioning battery.
d. Tyre Change- If the insured vehicle endures a flat tyre, the same will be replaced with the spare tyre as supplied by the
customer. If the tyre cannot be replaced, then either the vehicle will be towed to the nearest tyre repair shop or the customer
ferried between the said shop and back to his/her vehicle.
e. Fuel Delivery- Up to 5 liters of fuel is supplied to the customer in cases where the insured vehicle runs out of fuel. The cost
of the fuel will be incurred by the customer.
f. Emptying the Fuel Tank- If the fuel tank is filled with the wrong fuel, then the technicians contracted to the Insurer will help
empty the tank and complete the associated services.
g. Towing- The insured vehicle is towed to the nearest workshop/garage in the case of an accident or breakdown that rends
the vehicle immobile.
Q. What is Section 64VB of Insurance Act, 1938?
A. No insurer shall assume any risk in India in respect of any insurance business unless and until the premium payable is received
by him or is guaranteed to be paid by such person in such manner and within such time as may be is made in advance.
Q. What is the tenure of a Motor Insurance Policy?
A. At present, most of the motor insurance companies are offering two-wheeler insurance policies for 1 year. But IRDA has allowed
insurance companies to launch two-wheeler insurance policies for a longer duration, say 3 or 5 years. According to new rules
Q. What is long term policy? Is long term policy allowed in Motor Insurance in India?
A. Any policy more than one year is a long-term policy. No long-term policy is allowed for vehicles other than two wheelers. IRDA
has allowed insurance companies to launch two-wheeler insurance policies for a longer duration, say 3 or 5 years.
From 1st September, 2018 new rules have come into practice according to which buyers of new cars and two-wheelers must
purchase insurance cover for at least three and five years, respectively. After the introduction of mandatory long term Motor
TP Insurance for new cars and new two-wheelers, an insured may be given the following two options:
A. Long-term Package cover offering both Motor Third Party Insurance and Own Damage insurance for three years or five
years as the case may be.
OR
B. A bundled cover with a three-year or five-year term (as applicable) for the third party component and a one-year term for
the Own Damage.
Q. What are the benefits of a ‘long-term’ or ‘multiyear’ policies?
A. The primary benefit of a long-term two-wheeler insurance policy is that insured does not have to renew it annually (i.e. after 12
months). The IDV and third-party liability of the vehicle remain intact over the policy term. Long term policies have become money
saver techniques for policyholders. Insurers will not be allowed to revise premium rates during three-year policy term, even if insured
makes a claim during the period. Also, known as ‘Multi-year policies’ seem to be the new norm for two-wheeler motor insurance. As
many as six insurers, including ICICI Lombard, New India, HDFC Ergo, Bajaj Allianz General, now offer multi-year policies that are
cheaper than annual-renewal plans. Insurers give discounts ranging from 2%-6% on own-damage insurance for such plans.
Q. What is No Claim Bonus?
A. The bonus received by the policyholder when he has not made any claim in a policy tenure is called No Claim Bonus (NCB). No
claim bonus is a special discount given for every claim-free year. Typically, this starts at 20% in the first claims free policy period of
Car Insurance and goes up to maximum of 50% (where sun set clause is not applicable). NCB cannot be claimed as a right but has
to be earned by maintaining a claim-free record.
Q. Can Insured get NCB on the expired insurance policy?
A. You can get NCB on the expired policy only if you will renew it within 90 days of the policy expiration.
Q. Is NCB allowed given on all policies?
A. In comprehensive policy NCB can be earned only on ‘Own Damage’ section of policies covering all classes of vehicles. No NCB
is given in ‘Act Only’ or ‘Third Party’ policy. For policies covering Liability with Fire and/or Theft Risks, the NCB will be applicable
only on the Fire and / or Theft components of the premium.
Q. Is "No Claim" Bonus transferable in case an insured changes his insurer?
A. Yes, in case an insured is changing insurance company and has accrued some NCB from previous insurer, then he can get the
benefits for his NCB with new company too.
Q. What is the rate at which NCB is transferred from previous insurance company to new company?
A. The discount rate remains the same; provided insured shows evidence he is entitled to No Claim Bonus from his previous motor
insurance company. Evidence can be in form of a renewal notice or a letter confirming the NCB entitlement from the previous
insurer.
Q. Can No Claim Bonus be availed on purchase of new vehicle?
A. Yes, NCB is associated with the policyholder and not the vehicle. Therefore, you get to retain your NCB if you replace your
existing car with a new one or if you switch to another insurer at the time of renewal of the policy. NCB transfer is a fairly simple
process: Assume you had purchased a car in 2010, which was then sold in 2015 on or after the 5th policy anniversary. If you never
made a claim during the period, you would have earned an NCB discount of 50%. Now, suppose you buy a new car in 2017 and the
premium for this car's policy is Rs 18,000 (excluding GST), out of which Rs 12,000 is the premium for the own damage component.
You can transfer the NCB earned on the previous car policy to the new car policy and claim the NCB discount on the first premium
payable for the new policy. "Here, the applicable discount on the policy premium for you is 50% of Rs 12,000 which is Rs 6,000, so
you end up paying only Rs 14,000 instead of Rs 18,000.
Q. What is the procedure for transfer of NCB? What is NCB Certificate?
A. You have to follow a simple procedure to effect this transfer when you are selling your old car and buying a new one. One, you
have to submit forms 29, 30 (buyer-seller agreement form) along with the letter requesting for transfer of NCB to your existing
insurer, Next, the insurer has to issue an NCB certificate, which is valid for three years and you need to sub submit the same
to your new insurer. If you are switching to a new insurer at the time of policy renewal for your existing car, you only need your last
year's policy document or renewal notice that mentions the NCB you are eligible for.
Q. How some Insureds are getting NCB of 65% even today, when maximum NCB is said to be 50%?
A. The maximum NCB policyholders are entitled to is 50% i.e. once you have accumulated 50% NCB this discount will not increase
even if no claim is made in future years. However, there are some exceptions to the ceiling of 50%: Those who had renewed their
policies between July 1, 2002 and June 30, 2003 and had accumulated an NCB of 55% (second highest slab) or 65% (highest slab)
as per the tariff prevailing before July 1, 2002. Such people can use and carry forward this higher NCB until there is a claim under
their policy as per the ‘Sun Set Clause’. In case they get any claim, the NCB will reduce to zero and after that the current NCB grid
will come into force at policy renewals for such policyholders too.
Q. What an insured should do to reduce his motor insurance premium?
A. An Insured can reduce his premium in following ways:
a) by becoming a member of any Automobile Association;
b) by getting anti-theft device fitted in his vehicle, duly certified by ARAI, Pune;
c) by opting for Voluntary deductibles (bearing a certain amount of the damage);
d) Ensuring claim free policy period, he can avail No Claim Bonus.
Q. Why a vehicle owner should buy a comprehensive insurance when it is not mandatory by Law?
A. By buying comprehensive cover, he can claim from his insurance company for accidents or damages caused to the vehicle.
Without comprehensive cover, the entire responsibility to pay the bill comes on his shoulder. Thus, by opting for comprehensive
insurance policy, you can get complete peace of mind that whatever happens to your two-wheeler, insurer will share your financial
burden.
Q. What is the endorsement in motor insurance?
A. The term endorsement regarding insurance refers to an agreement that is a documented valid proof of one or more agreed
changes in the policy terms. it can also refer to an attachment to a document that amends or adds to it. The endorsement, typically,
is of two types – Premium Bearing and Non-Premium Bearing.
Q. Can Insured cancel the policy during the tenure of the insurance and get his premium refunded?
A. He can cancel the policy during its term, provided he submits documents to prove that his vehicle has been insured elsewhere or
the registration certificate of the insured vehicle has been cancelled by the Regional Transport Office (RTO). Once the policy is
cancelled, insurer will refund the amount, for the reaming period. The refund is possible only if there has been no claim during the
policy tenure.
Q. Which liabilities/risks under Workmen’s Compensation Act are compulsorily insurable under Motor Vehicle Act?
A. Following motor related liabilities under Workmen’s Compensation Act are compulsorily insurable:
a) Paid driver of vehicle;
b) Conductor (public service vehicle);
 c) Ticket examiner (public service vehicle);
d) Workers carried in goods carrying vehicles;
Q. What are the discounts offered by some insurers for age and occupation?
A. Age Discount- This particular discount corresponds to the age of the insured and is worded as follows,
a) If the age of the insured is between 35- 45 years, 5% discount is offered on Own Damage Section of the policy.
b) If the age of the insured is between 46- 60 years, 10% discount is offered on Own Damage Section of the policy.
Submission of PAN Card copy and proof of age and is a must to avail the discount.
Occupation Discount: 5% off on the Own Damage Section of the policy. The discount applies if the insured is-
a) A practicing Chartered Accountant.
b) Employed with the defence and paramilitary wings of the Indian armed forces.
c) A teacher in a government approved school or other educational institutions.
d) Employee working in a State or Central Government concern.
e) Medical doctors who are recognized by any Government approved Medical Council.
Q. What is the minimum premium for a Motor Insurance Policy?
A. The minimum premium for vehicles specially designed or modified for use of the blind, handicapped and mentally challenged
persons will be Rs.25/- per vehicle. For all other vehicles, the applicable minimum premium per vehicle will be Rs.100/-.
Q. How will insurer discourage adverse or high claim ratio?
A. Loading on tariff premium rates by 100% may be applied for adverse claims experience of the vehicle insured. If the experience
continues to be adverse, a further loading of 100% on the expiring premium may be applied.
Q. What is the geographical area covered under standard motor insurance policy? Can it be extended?
A. The Geographical Area of Motor Policies is confined to Indian territory which may be extended on the request of the Insured to
include Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka and Maldives by charging a flat additional premium (Rs.500 per vehicle for
package policy Rs.100 for other policy) for a period not exceeding 12 months.
Q. What is ‘Valued Policy’ or ‘Agreed Value’ Policy?
A. Agreed value policy is an insurance contract under which the insurer agrees to pay the insured a mutually agreed amount in the
event of the total loss of the property insured without any adjustment for depreciation or appreciation. With a valued policy, the
insurer pays a specified amount of money to the insured after occurrence of a loss. It is not permitted to issue Agreed Value Policies
under Motor Insurance Tariff rules excepting for certain types of vehicles (vintage car).
Q. Can an ‘Agreed Value’ Policy be issued under Motor Insurance?
A. It is not a practice to issue Agreed Value Policies in motor insurance excepting vintage cars (manufactured prior to 31-12-1940)),
duly certified by the Vintage and Classic Car Club of India
Q. What is Motor Trade Insurance?
A. Motor Trade Insurance policy is taken out by someone who runs a business involving anything to do with cars, motorbikes and
vans such as buying and selling cars, repairing and servicing, valeting, running a garage.
Q. What type of motor trade insurance policies are there?
A. Motor trade insurance policies generally cover 3 areas: -
1) Road Risk Motor Trade Insurance: is divided into 3 types of covers:
a) Third Party Only motor trade insurance policies also known as a Third-Party Road Risks Policy. The law
requires a motor trader to purchase this policy if the trader (i) drives his own or any customer’s vehicles on the
public highway (ii) provides general services of repairing of vehicles, (iii) buys and sells cars for profit, (iv) operates
as a vehicle fitter, valets vehicles or is a mobile tuner, (v) repairs cars. This is the most basic level of coverage and
covers a motor trader for third party injury, third party property damage and third party death caused by any vehicle
connected to his trade.
b) Third Party Fire and Theft motor trade insurance policies
c) Comprehensive Motor Trade Policies
2) Liability Motor Trade Insurance policy is specially designed for motor traders who will have the public within their
premises while doing business with them or providing services to them.
3) Combined Motor Trade Insurance: This policy covers for money, vehicles, liabilities, premises, tools and contents. This
type of policy is an extensive policy that is designed to protect the entire business of a motor trader.
Q. Is NCB allowed on Motor Trade Insurance Policies?
A. NCB is not allowed on Motor Trade Policies (Road Transit Risks / Road Risks / Internal Risks).
Q. Will ‘tyre add on’ covers theft of tyre?
A. No, it covers expenses for repair and/or replacement arising out of accidental loss or damage to tyres and tubes.
Q. What is a Constructive Total loss (CTL)?
A. In General Insurance parlance, a constructive total loss is a situation where the cost of a repair for a property is more than its
current value. A partial loss has occurred to an extent that the property is beyond economical repair (cost of restoring it exceeds its
insured value). In CTL cases, the insured may (if terms of the insurance policy permit) abandon the property by giving a 'notice of
abandonment' to the insurer who then assumes all rights to the property. In case of Motor Insurance in India The total cost of revival
and/or repair of the vehicle is greater than 75% of IDV.
Q. What are the rules for charging depreciation on Parts for Partial Loss Claims?
A. The following rates of depreciation shall apply for replacement of parts for partial loss claims in respect of all categories of
vehicles / accessories.
1) Rate of depreciation for all rubber nylon/ plastic parts, tyres and tubes, batteries and air bags - 50%
2) Rate of depreciation for all fibre glass components - 30%
3) Rate of depreciation for all parts made of glass - Nil
Rate of depreciation for all other parts including wooden parts is to be as per the following schedule
Q. Does ‘under insurance’ apply to motor insurance policies in case of partial losses?
A. No, ‘under insurance’ does not apply to motor insurance in case of partial losses. In case of ‘Total loss’ or ‘ CTL’, the claim
amount will not exceed Sum Insured which is based on ‘Insured Declared Value’, even if it is less than current value of the vehicle.
Q: What is excess?
A: Excess, also called deductible, is to the first amount of the claim which the insured has bear. An excess is a contribution insured
is required to pay towards a claim which he has lodged on his motor insurance policy.
Q: Why should there be an excess or what is the rationale of imposing excess?
A: The insurer normally imposes some excess as this would serve as a form of co-insurance. With an excess, the insured would
tend to be more careful because if a claim occurs, the insured also has to bear some loss himself and contribute towards the claim.
In general, the higher the excess, the more careful would be the insured and hence the lower risk of having a claim.
Q. What are the different types of excess?
A. Broadly speaking, there are two types of excesses:
Compulsory Excess: Compulsory deductible or excess for car insurance is that amount that is mandatorily deducted by
insurance companies on each and every claim you make. So you don’t have much of a choice here. It is a fixed amount that
depends on the type of vehicle. Claims are paid out only after deducting it. All policies come with a compulsory excess clause.
Voluntary Excess: Voluntary excess is optional. This is a voluntary deductible (in terms of amount) chosen by Insured in
addition to any compulsory excess. Insured can opt for a voluntary excess for his car, over and above the compulsory excess. It
is a deductible that insured is willing to bear voluntarily for which he is given discount in the insurance premium.
Q. What is Motor Vehicle Act and what is the significance of this Act in Motor Insurance?
A. The right to claim damages in case of injury/death resulting from accidents was recognized in India in late 1930s, when Motor
Vehicles Act, 1939 was enacted specifically to deal with accidents arising out from Motor Vehicle. Further thereafter, Motor Vehicles
Act, 1988 was enacted to consolidate and amend the law relating to accidents arising out of Motor Vehicles.
The Motor Vehicles Act, 1988 has been enacted keeping in mind the following objectives;
i. Administration of the Solatium Scheme by the General Insurance Corporation.
ii. Provision for enhanced compensation in cases of “no fault liability” and in hit and run motor accidents
iii. Provision for payment of compensation by the insurer to the extent of actual liability to the victims of motor accidents
iv. Providing adequate compensation to victims of road accidents without going into long drawn procedure
v. Increase in the amount of compensation of the victims of hit and run cases.
vi. Ensuring reasonable payment of compensation to road accident victims on the basis of age, income,number of
dependents etc.
Q. What is ‘Hit and run’ case?
A. Section 161 of the Motor Vehicle Act defines "hit and run motor accident” is a motor accident arising out of the use of a
motor vehicle the identity whereof cannot be ascertained in spite of reasonable efforts for the purpose. ‘Hit and run’ is a crime of a
driver of a vehicle who is involved in a collision with another vehicle, property or human being, who knowingly fails to stop to give
his/her name, license number, and other information as required by statute to the injured party, a witness, or law enforcement
officers.
Q. What is the procedure for settling ‘Hit and run’ claims?
A. The victim of the “hit-and-run” vehicle or his legal representative shall make an application to the Claim Enquiry Officer in each
Taluka (Tehsil, mandal). After enquiries, the Claims Enquiry Officer will submit a report together with certificate of post mortem or
injury certificate to the claims settlement commissioner who will be either the District Collector or the Deputy Commissioner at
the District level. He will process the claims and sanction the payment within 15 days from the receipt of report from Claim Enquiry
Officer and communicate sanction order to the nominated office of the Insurance Company. The compensation under Hit and Run
Accident cases are made from a Solatium Fund.
Q. What is ‘Solatium Fund’?
A. The victims of the 'Hit & Run' cases, accident are eligible for compensation through a Special Fund constituted in terms of
Section 163 of the Motor Vehicles Act, 1988 called 'Solatium Fund'. The amount of Compensation is `50,000/- in the event of death
and 25,000/- for grievous injuries. Solatium Fund is contributed by General Insurance industry under an agreed formula. The
administration of claims is done by New India Assurance Co Ltd which has nominated one Divisional Manager in each district at
District Level Committee which is headed by District Collector.
Q. What is short period cover? Can short period cover be given for Motor Insurance?
A. Short Period Cover/ Renewal may be granted for periods less than twelve months at the following short period scale. Extension of
short period covers/short period renewals can be granted only by charging the premium for such extensions at the short period
rates. Short period covers/short period renewals for Liability Only Policies are not permissible.
Q. What is double insurance? What options does Insured have as per the rules if he taken double insurance?
A. If an insured has taken two insurance policies for the same vehicle it is a case of double insurance. Following are the rules:
a) Later policy to be cancelled on pro-rata refund of premium (subject to retention of minimum premium), provided no claim
under any policy has been paid or lying pending during current policy period.
b) If both the policies are with same insurer, 100% refund to be made (without retention of minimum premium)
c) If earlier policy to be cancelled, premium to be retained on short period basis.
Q. What is the discount for ‘Automobile Association’ Membership?
A. If a discount @ 5% of the Own Damage premium, subject to a maximum of Rs.200/- for a Private Car and maximum of Rs.50/-
for a Motorized Two-Wheeler may be allowed.
Q. What is the discount for ‘Vintage Cars’?
A. Private Cars certified by the Vintage and Classic Car Club of India as Vintage Cars will be eligible for 25% discount on Own
Damage Premium.
Q. What is the discount for ‘anti-theft device’? Can this discount be given for mid-term installation of anti-theft device?
A. A discount of 2.5% on the Own Damage (OD) component of premium subject to a maximum of Rs. 500 for installation of for ‘anti-
theft device. For mid-term installation of anti-theft device-pro rata proportion of the premium discount calculated as per tariff
provision for the unexpired period of the policy is to be allowed.
Q. What is the discount for specially designed / modified for use of blind, handicapped and mentally challenged persons?
A. A discount of 50% may be allowed on the OD premium in respect of both privately owned vehicles and vehicles owned and used
by institutions engaged exclusively in the services of such persons.
Q. What is the additional premium charged for electrical/electronic fittings?
A. In case of vehicles fitted with bi-fuel system such as Petrol/Diesel and CNG /LPG, permitted by the concerned RTA, the
CNG/LPG kit fitted to the vehicle is to be insured separately at an additional premium @ 4% on the value of such kit to be
specifically declared by the insured.
Q. Can a restricted cover for ‘Fire and / or Theft Risks’ be provided under motor insurance?
A. Only while the vehicle is in garage and not in use for the entire duration of the policy period policies may be issued to cover the
risks of Fire and/or Theft only (without Liability Only cover) at the following rates of premium:

Risks covered Premium

Fire only 0.50% on IDV
Theft only 0.50% on IDV
Fire & Theft only 0.75% on IDV

Q. What is the procedure followed for calculating motor premium for a Private Vehicle?
A. Generally, under mentioned procedure is followed for calculating insurance premium for a Private Car:
1st Step: Calculate IDV (Insured's Declared Value)
2nd Step: IDV X Premium Rate (decided by Insurer)
3rd Step: Deduct discounts (like NCB, Installation of Anti-theft device)
4th Step: Arrive at Own Damage Premium
5th Step: Add PA Cover
Add Legal Liability towards driver
Add Legal Compulsory Third Party Cover
6 Step: Arrive at the Net Premium
th

7th Step: Add Service Tax 14%

8th Step: Arrive at the Total Premium
Q. What is sound or prudent underwriting? What are the steps to be taken for sound underwriting?
A. Sound underwriting means careful selection of risk, imposing certain terms and conditions and continuous monitoring of risk.
Steps for sound underwriting:
1) Screening of complete proposal form for consideration of -Type of vehicle, use of the vehicle, geographical area of
operations, the driver, No claim discount, Past claims experience, Moral hazard etc
2) To maintain statistical records related to underwriting and claim experience
3) To strictly follow some important guidelines as under: for old vehicles, only restricted or Motor Policy Third Party
Liability (TPL ) cover or pre acceptance inspection be carried out before insurance; pre risk inspection necessary
in case of break in insurance or change from TPL cover to package policy; proper fixing of IDV; sports cars at
greater risk (high speed), Private cars are better risks than taxis, owner driven taxis are better risks than hirer
driven;
Q. What is ‘Cash Less’ facility in Motor Insurance?
A. Nowadays, many insurers are providing cash less facility to their clients in respect of claim settlement. Under this system, the
repairer will release the vehicle after taking the amount of depreciation and excess along with a satisfaction voucher from the client.
Balance payment (liability of the co.) shall be paid directly by the insurer to the repairer.
Q. What is difference between a cashless claim and reimbursement claim?
A. Cashless claim is the complete responsibility of the insurance company. Most of the companies have their own garage network,
which can repair the damaged vehicles. The owner does not have to worry about the expenses apart from the consumables (not
covered in the policy). The payment of only the difference amount as confirmed during the process of the claim needs to be made by
the insured.
If you decide to choose your own garage for repair works (not a part of the insurer’s garage network), then you can claim
reimbursement for the same after having paid the repair bill. You will need to submit the original bills, payment receipts to the
insurance company after you settle the repair amount from your own pocket

Q. What is No Fault Liability?

A. It is a liability to pay compensation in certain cases on the principle of no fault. – (1) Where death or permanent disablement of
any person has resulted from an accident arising out of the use of a motor vehicle or motor vehicles, the owner of the vehicles shall,
or, as the case may be, the owners of the vehicles shall, jointly and severally, be liable to pay compensation in respect of such death
or disablement in accordance with the provisions of this section. Some of the rules are as under:
 no need to prove any negligence or default of owner or driver.
 only incident proof sufficient.
 fixed compensation:
a) for death- 50,000/-
b) permanent disablement 25,000/-
 it is an interim relief (final relief will follow)
 claim can further be filed in MACT on the basis of fault liability under sec.166.however, the interim relief would be
deducted from the final award.
 no recovery in case of lower award.
Q. What is Third Party Pool? How does it work?
A. On 1st April, 2007, Indian Motor Third Party Insurance Pool (IMTPIP) was setup by all General Insurers in India. The main
objective behind this was to make available ‘Third Party’ Insurance to all commercial vehicle owners at reasonable rates and terms
and to distribute the losses on this account to all market participants. General Insurance Corporation of India (GIC) acts as the
administrator of the pool. It started act under the guidance of the General Insurance Council. The motor insurance was de-tariffed in
2007, however Third Party Liability cover was still regulated to ensure that the mandatory third-party cover didn’t become out of
reach for vehicle owners, this has posed a problem for the insurers.
The losses for general insurance companies were rising on account of the third party motor pool system that prevailed for almost
five-year period between 2007 and 2011 and had aggregated losses to over Rs 8,000 crore in that period,
The IRDA decided to do away with the pooling system in December 2011 bringing much relief to the industry that had been asking
for the same.
The order from the finance ministry in the 3rd Week of March, 2014 to cancel the IRDA’s 2011 order to withdraw third party
insurance pool in motor insurance has created confusion among the general insurers who do not seem to be ready to go back to the
pooling system.
Q. If an insured gets CNG or LPG kit fitted in his car, is it necessary to inform the Insurance Company?
A. it is necessary to inform both the Road Transport Authority (RTA) where the vehicle is registered and your Insurance Company.
The RTA will make a note of the change in the Registration Certificate (RC), and the Insurance Company will inform you about the
payment of extra premium for the value of the kit to be covered under the “OD” and “TP” sections. The fitting of the CNG should be
endorsed in the RC barring, which an insurance claim would be considered as void.
Q. What are the documents that are required to be submitted for a Car Insurance claim?
A. The documents which you would generally require are:
i. The duly filled claim form
 ii. The Registration Certificate (RC) copy of the vehicle
iii. Original estimates of loss
iv. Repair invoice and payment receipt
If you are availing the cashless facility, then only the repair invoice would be required. For theft claims, you would need to file an FIR
with the local policy and the copy of the same needs to be submitted to the insurance company along with the keys of your vehicle
and a non-traceable certificate.
Q. Can the insurance continue to be in the name of the previous owner whereas the vehicle is transferred in RTO records
in insured’s name?
A. No, this is not advisable. The registration and insurance of the vehicle should be in the same name and same address otherwise
the claim might get denied. So a fresh proposal can be filed and with the payment of a nominal fee so that insured can initiate the
transfer of the insurance.
Q. What is salvage and total loss?
A. The value of wreckage (debris) when a vehicle meets with an accident where the vehicle is damaged is considered as salvage.
Whereas when the retrieval of the damaged vehicle to its initial condition is not possible is considered as total loss.
Q. How a motor insurance policy will be renewed after a gap of insurance on expiry of the policy?
A. An expired motor insurance policy can be renewed once the vehicle inspection has been undertaken by the representatives of the
insurance company.
Q. What is Motor Accidents Claims Tribunal?
A. Motor Accidents Claims Tribunal has been created by the Motor Vehicles Act, 1988.It has been constituted to provide speedier
remedy to the victims of accident by motor vehicles at a minimum cost. Tribunals have been constituted by different State
Governments. Motor Accident Claims Tribunals deal with claims relating to loss of life/property and injury cases resulting from Motor
Accidents.
Q. When can compensation be claimed through MACT?
A. There is no time limit for filing motor vehicle accidents claim. But an unusual delay will demand an explanation by the Tribunal.
According to Section 165 of the Motor Vehicles Act,1988 – ‘claims for compensation in respect of accidents involving the death of, or
bodily injury to, persons arising out of the use of motor vehicles, or damages to any property of a third party so arising, or both.
In other words, the Tribunal can adjudicate upon claims for compensation –
a) When the accident involves death of the person, or bodily injury to the person; or damage to any property of the third
party; or both.
b) When the accident arises out of the use of motor vehicle
Q. Who can claim the Compensation through MACT?
A. The compensation can be claimed –
a) By the person who has sustained injury;
b) By the owner of the damaged property;
c) By all or any legal representative of the deceased who died in the accident;
d) By duly authorised agent of the injured person or all or any of the legal representatives of the deceased who died in the
accident.
Q. How and where can compensation be claimed through MACT?
A. The Claim Petition can be filed –
1) to the Claims Tribunal having jurisdiction over the area in which the accident occurred or,
2) to the Claims Tribunal within the local limits of whose jurisdiction the claimant resides, or carries on business or,
3) within the local limits of whose jurisdiction the defendant resides12
There is the prescribed format of the Claims Petition by Courts and following documents required while filing Claim Petition
a. Copy of the FIR registered in connection with said accident, if any.
b. Copy of the MLC/Post Mortem Report/Death Report as the case may be.
c. The documents of the identity of the claimants and of the deceased in a death case.
d. Original bills of expenses incurred on the treatment alongwith treatment record.
e. Documents of the educational qualifications of the deceased, if any.
f. Disability Certificate, if already obtained, in an injury case.
g. The proof of income of the deceased/injured.
h. Documents about the age of the victim.
i. The cover note of the third party insurance policy, if any.
Q. Who has the responsibility to prove whether a motor vehicle is insured with a particular company?
A. The onus of proving whether a motor vehicle is insured with a particular company is on the owner of the motor vehicle
responsible for injury/death or damage to property.
Q. Whether the right of compensation of victim is affected by the fact that motor vehicle was driven by a man having no
driving license?
A. In this case the driver had no driving license when he met an accident with the motor vehicle he was driving. The right of
compensation of victim is not affected by the fact that motor vehicle was driven by a man who was not having driving license to do
so. Even if the insurance policy mentions something contrary to this rule.
Q. Will ‘No Claim Bonus’ get migrated if an insured wants to change his insurance company?
A. Yes, an insured can avail of the NCB facility if he changes the insurer on renewal. He would have to produce proof of the NCB
earned by way of renewal notice from the current insurer. Alternately, he can produce his original, expiring policy along with a
certification that you have lodged no claims on the expiring policy. For this the proof can be in the form of a renewal notice or a letter
confirming the NCB entitlement from the previous insurer.
Q. What is deductible?
A. Deductible or “excess” is the amount over and above, which the claim will be payable. There is a normal standard/compulsory
excess for most vehicles ranging from Rs 50 for two-wheelers to Rs 500 for Private Cars and Commercial Vehicles which increases
depending upon the cubic capacity/carrying capacity of the vehicle. However, in some cases the insurer may impose additional
excess depending upon the age of the vehicle or if there is high frequency of claims.
Q. If CNG or LPG kit is fitted in the insured vehicle, is it necessary to inform the Insurance Company?
A. If a CNG / LPG kit is fitted in the vehicle, the (Road Transport Authority (RTA) office where the vehicle was registered should be
informed so that they make a note of the change in the registration certificate (RC) of the vehicle. The insurance company should
also be informed so that the kit is covered on payment of extra premium on the value of the kit under “OD” section and also under
“LO” section.
Q. What is the procedure for recording any changes in the policy?
A. If there are any changes in the policy like change of address or modifications to the vehicle or its use, it will be done by an
Endorsement by the insurance company. Submit a letter to the insurer with proof for the changes and obtain the endorsement.
Some endorsements may require you to pay additional premium. Check the correctness of the endorsement.
Q. In case of insurance policy being lost or misplaced, can the insured get a duplicate one?
A. Yes, he should approach the same office, which had issued the policy, with a written request. A nominal fee is charged for issuing
a duplicate policy copy.
Q. What is Lok Adalat? What is the significance of Lok Adalats in settling of Motor Third Party claims?
A. In order to reduce the heavy demand on Court time, cases must be resolved by resorting to 'Alternative Dispute Resolution'
Methods before they enter the portals of Court. Here comes the significance of Lok Adalat which has provreded its significance by
settling huge number of Third Party claims referred by Motor Accident Claim Tribunal (MACT). Except matters relating to offences,
which are not compoundable, a Lok Adalat has jurisdiction to deal with all matters.

B R Singh
ASIBAS
Amity University, Noida