Motor insurance policy is a contract between the insured and the insurer in which the insurer promises to indemnify the financial liability in event of loss to the insured. Motor Vehicles Act in 1939 was passed to mainly safeguard the interests of pedestrians. According to the Act, a vehicle cannot be used in a public place without insuring the third part liability. According to Section 24 of Motor Vehicles Act, “No person shall use or allow any other person to use a motor vehicle in a public place, unless the vehicle is covered by a policy of insurance.” Classification of Motor Vehicles As per the Motor Vehicles Act for the purpose of insurance the vehicles are classified into three broad categories such as.
Private cars:
a) Private Cars - vehicles used only for social, domestic and pleasure purposes
b) Private vehicles - Two wheeled
1. Motorcycle / Scooters
2. Auto cycles
3. Mechanically assisted pedal cycles
Commercial vehicles:
1. Goods carrying vehicles
2. Passengers carrying vehicles
3. Miscellaneous & Special types of vehicles
The risks under motor insurance are of two types:
1) Legal liability due to bodily injury, death or damage caused to the property of others.
2) Loss or damage to one’s own vehicle\ injury to or death of self and other occupants of the vehicle.
Types of motor policies
When you buy a motor vehicle, you need to buy a motor insurance. There are, however, many types of motor insurance policies available. The common types are:
• Third party cover - This policy insures you against claims for bodily injuries or deaths caused to other persons (known as the third party), as well as loss or damage to third party property caused by your vehicle.
• Third party, fire and theft cover - This policy provides insurance against claims for third party bodily injury and death, third party property loss or damage, and loss or damage to your own vehicle due to accidental fire or theft.
• Comprehensive cover - This policy provides the widest coverage, i.e. third party bodily injury and death, third party property loss or damage and loss or damage to your own vehicle due to accidental fire, theft or an accident.
Exclusions/Extensions
A standard motor insurance will not cover certain losses, such as your own death or bodily injury due to a motor accident, your liability against claims from passengers in your vehicle (except for passengers of hired vehicles such as taxis and buses) and loss or damage arising from an act of nature, such as flood, storm and landslide. However, you may pay additional premiums to extend your policy to cover flood, landslide, landslip as well as cover your passengers. It is important to check your policy for the exclusions.
Important points to consider when buying motor insurance policies
Insured value/sum insured: If you are buying a policy against loss/damage to your vehicle, you must ensure that your vehicle is adequately insured as it will affect the amount you can claim in the event of loss/damage. For a new vehicle, the insured value will be the purchase price while for other vehicles, the insured value is the market value of the vehicle at the point you apply for the insurance policy.
• Under-insurance – If you insure your vehicle at a lower sum than its market value, you will be deemed as self-insured for the difference, i.e. in the event of loss/damage, you will only be partially compensated (up to the proportion of insurance) by your insurance company.
• Over-insurance – Should you insure your vehicle at a higher sum than its market value, the maximum compensation you will receive is the market value of the vehicle as the policy owner cannot ‘profit’ from a motor insurance claim.
Duty of disclosure: You should disclose fully all material facts, including previous accidents (if any), modification to engines, etc. When in doubt as to whether a fact is relevant or not, it is best to ask your insurance company. If you fail to disclose any material fact, your insurance company may refuse to pay your claim or any claim made by a third party against you. In such cases, you are personally liable for such claims.
Price: The price you pay for your motor insurance will depend on the type of policy selected. The insurance premium charged by your insurance company is the standard minimum rate in accordance with the Motor Tariff. However, in addition to the standard minimum rate, your insurance company may impose additional premiums known as loadings to the premium payable in view of higher risk factors involved such as age of vehicle and claims experience.
No-claim-discount: The premium payable may be reduced if you have no-claim-discount (NCD) entitlement. NCD is a ‘reward’ scheme for you if no claim was made against your policy during the preceding 12 months of policy. Different NCD rates are applicable for different classes of vehicles. For a private car, the scale of NCD ranges from 25% to 55% as provided in the policy.
Transfer of ownership: In case of any sale of vehicle involving transfer of policy, the insured should apply to the insurer for consent to such transfer. The transfer is allowed, if within 15 days of receipt of application, the insurer does not reject the plea. The transferee shall apply within fourteen days from the date of transfer in writing to the insurer who has insured the vehicle, with the details of the registration of the vehicle, the date of transfer of the vehicle, the previous owner of the vehicle and the number and date of the insurance policy so that the insurer may make the necessary changes in his record and issue fresh Certificate of Insurance.
Excess: Also known as a ‘deductible’. This is the amount of loss you have to bear before your insurance company will pay for the balance of your vehicle damage claim. The types of excess applicable are as follows:
· Compulsory excess of RM400: If your vehicle is driven by a person not named in your policy or a person named in your policy who is under the age of 21, the holder of a provisional (L) driving license or the holder of a full driving license of less than two years.
· Other excess: applicable at the discretion of your insurance company and in some cases, no excess is imposed. You can negotiate with your insurance company on this excess.
What you should do in the event of an accident/loss
• Take notes of the accident – If you are involved in a motor accident, take notes of the accident, i.e. the names and addresses of all drivers and passengers involved, vehicle registration numbers, make and model of each vehicle involved, the drivers’ licence numbers and insurance identification as well as the names and addresses of as many witnesses as possible
• Make a police report – You are required by law to lodge a police report within 24 hours of a road accident.
• Notify your insurance company – You must notify your insurance company in writing with full details as soon as possible. Depending on the type of claim you intend to make, you may have to notify other insurance companies. If you fail to report the accident, you will be liable for your own loss as well as any third party claim against you.
• Select the workshop – You must send your damaged vehicle to a workshop approved by your insurance company. If the accident occurs during office hours, you may call the hotline/ emergency assistance numbers provided by your insurance company. Otherwise, you may call your insurance company for the nearest approved workshop. Should the accident occur outside office hours and you are making a claim against your policy, i.e. an own damage claim, you should ensure that your vehicle is towed to a workshop approved under Repairers Scheme.
Claim Settlement
Claim arises when:
1) The insured’s vehicle is damaged or any loss incurred.
2) Any legal liability is incurred for death of or bodily injury
3) Or damage to the third party‘s property.
The claim settlement in India is done by opting for any of the following by the insurance company.
· Replacement or reinstatement of vehicle
· Payment of repair charges
In case, the motor vehicle is damaged due to accident it can be repaired and brought back to working condition. If the repair is beyond repair then the insured can claim for total loss or for a new vehicle. It is based on the market value of the vehicle at the time of loss. Motor insurance claims are settled in three stages. In the first stage the insured will inform the insurer about loss. The loss is registered in claim register. In the second stage, the automobile surveyor will assess the causes of loss and extent of loss. He will submit the claim report showing the cost of repairs and replacement charges etc. In the third stage, the claim is examined based on the report submitted by the surveyor and his recommendations. The insurance company may then authorize the repairs. After the vehicle is repaired, insurance company pays the charges directly to the repairer or to the insured if he had paid the repair charges.
Section 110 of Motor Vehicle Act, 1939 empowers the State Government in establishing motor claim tribunals. These tribunals will help in settling the third party claims for the minimum amount
Theft claims
• After submission of the claim form, you must cooperate fully with your insurance company or its representative during the course of investigation of the theft claim.
• In view that the police and your insurance company will require time to investigate your claim, you will receive the offer of settlement from your insurance company within six months from the theft notification or upon completion of police investigations, whichever is earlier
