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Vehicle Insurance

In the older times, persons who were injured or killed through the negligence of the motorists could not get financial redress either to them or to their legal heirs because no scheme of insurance was present at that time. To mitigate the financial hardship caused to the persons, the Indian Motor Vehicle Act, 1939, as amended from time to time, has made it compulsory for the motorists to insure against the risk of liability to third parties.

The rate of premium is standardized because the business is tariff. No insurer can charge lower rates than the tariff rates and no in car insurance can grant benefits exceeding than those prescribed by the tariff.

Vehicles for the purpose of insurance are classified as below:

a) Private cars (not used for carrying passengers for hire or reward).

b) Commercial vehicles such as goods carrying vehicles, passenger vehicles, tractors and others.

c) Motor cycles, scooters and auto cycles.

Kinds of Policies

The policies under Motor Insurance are as follows:

1. Act Liability only.

2. Third Party only.

3. Comprehensive policy.

1. Act Policies

This policy is designed to meet the requirements of Indian Motor Vehicles Act, 1939, which provides for compulsory insurance in regard to liabilities arising out of use of motor vehicles in a public place. This kind of policy is limited to bodily injury or death of the third parties. Section 95 (2) of the Indian Motor Vehicles Act lies down that a policy of insurance shall cover any liability incurred in respect of any one accident up to the following limits.

a) Goods Vehicle: Rs.50, 000 in all including the liabilities if arising under the Indian Workmens Compensation Act, 1923, in respect of the death of or bodily injury to employees (other than driver) not exceeds six in number being carried in the vehicle. This means that the liabilities if any towards the driver and employees (above six) being carried in the vehicle under Indian Workmens Compensation Act in addition to Rs.50, 000.

b) Passenger Vehicles: Vehicles in which passengers are carried

i) For hire or reward.

ii) By reason of or in pursuance of contract of employment.

In respect of persons other than passengers carried for hire or reward: Rs.50, 000 in all.

In respect of passengers:

Rs. 50, 000 in all where the vehicle is registered to carry not more than 30 passengers.

Rs. 75, 000 in all where the vehicles is registered to carry not less than 30 but more than 60 passengers.

Rs. 1, 00, 000 in all where the vehicles are registered to carry more than 60 passengers.

Subject to the limit aforesaid Rs. 10, 000 for each individual passenger where the vehicle is a motor car (used to carry not more than 6 passengers excluding the driver) and Rs. 5, 000 for each individual passenger in any other case.

c) Other Vehicles: The amount of liability incurred except as provided otherwise.

The Act policy besides the cover as required under the Motor Vehicles Act provides for indemnification of the claimants costs and expenses which the insured shall become legally liable to pay as also costs and expenses incurred with the written consent of the insurer. The policy may extend to indemnify any driver who is driving the motor vehicles on the Insureds order or with his permission provided, he is not entitled to indemnify under any other policy.

2. Third Party Policy

This policy covers the liability of the third parties who suffered loss in connection with the damage of property and personal injury or death. Thus, this policy indemnifies the insured against his legal liability in respect of damage to property of third parties over and above Rs. 2, 000. The limit of liability is as follows:

a) Private Car Unlimited.

b) Commercial Vehicle:

a. Goods or passenger-carrying vehicles Rs.20, 000.

b. Other miscellaneous or special type of vehicles Rs.50, 000.

Motor cycle Unlimited.

The policy may be extended to include:

a) Fire

b) Theft risks

c) Legal liabilities to persons employed in connection with the operation and / or unloading of motor vehicles.

The private in car insurance policy extends to indemnify the insured (individual only) against legal liabilities incurred by him subject to limitations of indemnity whilst personally driving a private motor car. Private car policy covers legal liability of the insured to passengers (not for hire or reward) in the car although under the passengers (not for hire or reward) in the car although under the Motor Vehicles Insurance Act, it is not required to be covered. Liabilities arising while the motor car is being used in private places are covered. The policy covers bodily injury or death, property damage and medical expenses. Due to the amendment to the Motor Vehicles Act, 1994, liability on the third party claims has gone up as No fault liability compensation has been enhanced and Structured Compensation has been introduced.

3. Comprehensive Policy

The Comprehensive policy covers the following risks:

a) Damage to car parts or body.

b) Removal charges for repairs.

c) Third party liabilities.

d) Costs and expenses incurred with risk.

e) Repair charges.

f) Medical expenses.

At the payment of extra premiums, the following risks are also insured:

a) Death or injury to family members who are above 16 years and below 65 years.

b) Riots, strikes, thefts, larceny, etc.

c) Loss of Rugs.

Pre Litigation statements have been introduced to help claimants to get payment of compensations without approaching courts. Structured compensation formula has been used for quick settlement of claims.

Procedures of Insurance

The proposal form is completed for making proposal for motor in car insurance. The form is divided into three parts

a) Identification of vehicles: Registered number, horse-power, shape and size, model, etc.

b) Risk information: Past insurance, type of policy got previously, equipments, vehicles.

c) Declaration: The declaration of true and full statement of the questions is made at the end of the policy.

Rating the Motor Insurance

Since in car insurance is subject to tariff, basic premium is determined by the tariff association. Additional premium is added to the basic premium on the basis of shape, size, horse power, use, value of the motor car, etc. The higher the risk, the more will be the amount of premium. Rebate in premium is allowed if the insured has more than one car, is a member of Automobile Association and there was no loss in the previous years. The car was under the personal use and care of the owner.

Issue of Policy

As soon as the proposal form is accepted, cover note is issued. The cover note is a certificate of insurance although it cannot be used as a proof of insurance in a court of law. As soon as the policy is issued, the cover note is cancelled.

Term of Insurance

The motor insurance policy is issued generally for one year. However, the policy can be issued for less than one year but the premium rate will be higher, e.g. the premium rate is three fourths of annual premium of the policy issued for six months.

Additions of benefits

During the currency of policy, after payment of extra premium additional benefits can be added to the original policy. Thus additional risks can be included to the original policy.

Change of Vehicle

The insured vehicles can be disposed of along with the policy. The term of policy will remain the same. The policy will continue up to the unexpired period with the purchaser of the car. Similarly the insured can replace another car under the same policy.

Furlough concessions

When risk is reduced, the proportionate share of premium is returned or the period of coverage is extended by the excess premium. This is called Furlough concessions.

Settlement of Claims

As soon as the damage occurs, notice of that is given to the insurer. The evidence or eye witness should be placed to the insurer. When the insurer is satisfied with the notice and evidence, he can issue claim form which is returned to the insured after completing it in all respects. Personal injury is also made in connection with the personal injury, damage to property, defense and prosecution.

Negligence of the parties

The insurer will pay the amount of liability only when the insured is at negligence. In other words, the insurer shall pay only when the insured not legally liable for indemnification to third party.

Knock for knock agreement

This clause says that the liability of the insurers will be limited only to the liability to the insured. In this case the third party liabilities do not arise.

Halving agreement

Under this agreement, the loss of both partners (insured) and third party and is equally divided amongst the insurer.

Private Car

Cover is granted against the loss of or damage to motor car and its accessories whilst thereon, anywhere in India, caused by any of the following perils:

a) Accidental, external means

b) Fire

c) External explosion

d) Self ignition

e) Lighting

f) Frost

g) Burglary, house breaking or theft

h) Malicious act

The cover is also operative whilst the car is in transit by road, rail, in land, waterway, lift or elevator.

The following are excluded:

a) Consequential loss

b) Depreciation

c) Wear and tear

d) Mechanical and electrical breakdowns, failures and breakages

Damage to tyres is ordinarily not payable. If however, the insured car is also damaged at the same time, the damage to tyres is payable but the amount payable in that event is limited to 50% of the cost of replacement of the tyres. The exclusion applies to damage to tyres and therefore losses of tyre due to theft is payable.

If the motor car is disabled as a result of damage covered by the policy, the insurers bear a reasonable cost of protecting the car and removing it to the nearest repairs, as also of redelivery to the insured. The amount so borne by the insurers is limited to Rs.150 in respect of any one accident.

Normally, repairs arising out of damage covered by the policy can be carried out only after they are authorised by the insurers. In terms of this section of comprehensive policy, the insured may authorize the repair to the car provided that

a) The estimated cost of such repair does not exceed Rs.300.

b) The insurers are furnished forthwith a detailed estimate of the cost.

c) The insured gives the insurers assistance to ensure that such repair is necessary and that the charge is reasonable.

Extra Benefits

The policy may be extended to cover the following extra benefits on payment of additional premium:

a) Accidents to insured or any named person (not less than 16 or more than 65 years of age) other than a paid driver or cleaner. This provide for specified scale of benefits in the nature of personal accident cover.

b) Accidents to insured and wife. Benefits and limits are similar to (a) above. In the event of both the insured and his wife being in the same car at the time of an accident the benefits will apply to insured and his wife to the extent of 50% only.

c) Accidents to unnamed passenger other than insured and his paid driver or cleaner. The benefits and age limits are similar to (a) above.

d) The legal liabilities to employees of the insured who may be traveling in or driving the employers car (other than paid drivers).

e) Business use by fellow employers. The policy extends to include use by persons other than insured for the business of the insureds employer and to indemnify such person. The additional premium depends upon whether use of one named person or use by unnamed is desired.

f) Accident to soldiers / sailors / airmen employed as by officers in their private capacity.

g) Trailers may not be insured separately and the cover on the trailers must correspond to the cover on the car.

h) Riot and Strikes.

i) Earthquake (fire and damage).

j) Flood, inundation, typhoon and hurricane.

k) Rugs, coats and luggage.

l) Legal liability of passengers for acts of negligence.

m) Reliability trials and rallies.

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