After working hard and saving up, Pradeep Vazirani bought his dream SUV, last year. He says after his wife, his only love is his car. To be on a safer side, he got his car fully insured.

Unfortunately, his car was smashed in an accident and the back door was completely damaged. But he was quite confident since he remembered his insurance agent's words, "Now your car is 100% insured."

So after a week, he went to the insurance company to make a claim for the loss incurred. However, to his utter dismay, he found out that only 60% of the loss amount would be borne by the company. Whatever happened to the remaining 40%?

What Vazirani was not aware of were the various terms and the hidden clauses mentioned in his insurance papers. He assumed that since his car was fully insured, he would get the full amount of loss.

Moneycontrol spoke to experts to understand what exactly was the issue.

Policy coverage

For motor insurance, either there is third party policy or package policy. In case of third party insurance, the policy covers the vehicle owner's legal liability to pay compensation for the third party. Damage to you or your car will not be borne by the company. Third party insurance is mandatory for all vehicles.

If your car is fully insured, then, along with the damage to third party, the package policy would cover loss or damage to the insured vehicle and its accessories as well. The loss may be due to any accident like fire, explosion, self-ignition or lightning, burglary, theft, riot and strike, etc. This package policy is not mandatory, though experts recommend it strongly.

Exclusions

All of us know what the insurance policy covers but not many of us know about its exclusions.

Firstly, there is a compulsory deduction that is made when you claim the loss amount. For example, Iffco Tokio deducts Rs 500 when a claim is made. This amount differs from company to company and is meant to protect against petty claims. Other exclusions under the package policies include wear and tear, breakdowns, consequential loss and many more.

However, the most important exclusion, and the one that affected Vazirani's claim, is the damage to tyres, tubes and other nylon, glass and plastic accessories. Damage to tyres and tubes is not paid for unless the entire vehicle is damaged at the same time of accident. Liability is limited to 50% of the cost of replacement.

"Same is the case with any nylon, plastic parts, battery and air bags. For fibre glass components, the company pays only 30% of the cost," says the spokesperson of Bajaj Allianz General Insurance. Vazirani had to pay for the plastic door handle, tail lights that include the break lights as well as indicator. He did not know that the company does not pay for all the parts made of glass and he had to pay for that too.

Also, 15% was deducted on all the steel parts. This, in itself, was a big cost that he had to shell out, in spite of getting his car fully insured. Plus, there was a 10% rate of depreciation for all the other parts including wooden parts, since his car was more than a year old.

Insurance companies attribute this deduction to the rules and regulations that have been laid down by the Motor Tariff.

Officials from Bajaj Allianz say that the motor tariff was made after a lot of research on the kind of claims the companies were getting. Products like tyres, batteries and so on are used everyday and a depreciation value is attached to it.

Therefore, it is extremely important that you read your offer document carefully and be aware of all the hidden clauses like this one.

Along with all these, there are also few details given by V Ramakrishna, managing director, India Insure Risk Management Services Pvt. Ltd., which the owner of the vehicle must take care of:

• If an insurance company decides to take a spot survey then do not move your vehicle from accident spot till survey gets completed.
• All replaced parts should be kept for inspection by surveyor and should not be disposed of till the surveyor gives approval for the same.
• Do not take any action for damaged vehicle before prior-approval of insurance company / surveyor like repairs, movement of vehicle, etc.
• Never enter into a compromise or make an out-of-court settlement with the injured or legal heirs of the deceased without the consent of the insurers. These compromises or out of court settlements are not payable in terms of insurance policy.
• Documents to be deposited with insurers include original bill of repairs / replacements, cash memo, payment proof, etc., for finalisation / disposal of claim by the insurance company.
• Submission of xerox copies of bills / invoices paid is not accepted. Original bills are required to be submitted to insurance company.
• On approval of claim, arrange to deposit / salvage the damaged parts with the insurers failing which they may deduct the salvage value from the claim amount.
• Provide co-operation to the advocate deputed by the insurance company.

To sum up

One has to be very careful while making a claim and should also be prepared to shell out a good amount from his pocket as well. The owner of the vehicle should be aware of all the terms and hidden costs, which Vazirani did not know that led to nothing but disappointment.

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