Busted: 10 auto insurance myths

Buying an auto insurance cover? Beware of these myths

Auto insurance is one of the most popular and highest selling insurance product. It is also mandated by law to carry a valid auto insurance policy with you at all times. However, before the actual buying process starts, every prospective policy holder tries to question her/his insurance requirements before purchasing a policy. The one thing that everybody tries to be cautious about is to not get tricked or duped by the company or agent. This has led to a few generic myths, which are just that -- myths.

Some of them are listed below:

1. No need to get your old vehicle insured

Of course, the substantially marked down value of your old vehicle might not be enough to pay for a comprehensive insurance policy. However, the older your car gets the greater is the possibility of it being stolen. It is easier for crooks to sell off the parts.

2. You are a brilliant driver. You do not need insurance

You are a good driver but can you guarantee the driving skills of other drivers on the road. Especially in India, where there are thousands of deaths each year due to negligent driving every year.

3. A metallic coloured car requires the insurer to pay a higher premium

NO! The colour of your car does not determine the amount of premium that has to be paid. The premium of your car is determined by factors like the model of the car, make, body type, engine type, age of the driver etc.

4. Car insurance is higher for new cars

Contrary to popular belief, the age of a car is not the only criteria to determine the insurance of cars. If a company has stopped manufacturing a particular model, for example, Hyundai’s Santro, it will become difficult for any mechanic to obtain its parts. Hence, the process of repair will become more expensive, which in turn will lead to a higher insurance of older cars as well.

5. Acts of god are not covered

A comprehensive insurance policy generally covers flood, earthquake, collision with animals, fire, etc. In coastal areas or earthquake prone areas, however, one may have to pay extra for such coverage. However, it is completely location-specific.

6. If one damages the car, the insurance company is liable to pay the complete price of the car

Does it make sense if you are asked to pay for an already half eaten burger? Similarly, no insurance company would pay the whole price of a car that has been used for quite some time. The company is going deduct the amount of depreciation before making the payment. You can however go for zero-depreciation cover to negate the effects of any depreciation.

7. Insurance cannot be transferred from one company to another or you lose your no claim bonus

No claim bonus is paid for maintaining your car in a good condition. You become eligible to receive it once your insurance claim has expired and you have not claimed anything in between. If you were to transfer your insurance contract from company A to company B, it could easily be transferred provided the claim is filed within 90 days from the expiry of the insurance contract at company A.

8. CIBIL history does not affect your insurance rates

Until a few years ago, an insurer’s credit worthiness as contained by CIR (a three-digit numeric summary of your credit history) did not apply to insurers in India. However, now the lower your credit ranking, higher could be your rates for borrowing money.

9. You cannot claim insurance in case the accident is caused by someone else driving your car

As long as the other person driving the car has a valid license, the insurance company is liable to pay you insurance if the accident is caused by your insured car. In fact, if you are driving the car without a valid license and cause the accident, then you will not be paid by the company. Driving without a valid license is a punishable offence.

10. You can use your vehicle for any purpose and drive around anywhere -- even outside India

The vehicle can be used only for the registered purpose for which it has been purchased -- private or commercial. In case a private registered motor causes an accident while being used for commercial purpose, the company will not be liable for paying claims for such accidents.

Similarly, if the insured is driving the car outside India, s/he will require to get this authenticated by the company, who will in turn determine the cost of the car.

Illustration: Uttam Ghosh/Rediff.com

Naval Goel is CEO and Founder, PolicyX