Personal Auto Insurance

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What is Personal Auto Policy?

Personal auto policy provides coverage to private passenger vehicles. In this, the insured is provided protection against the financial losses incurred due to bodily injury or any damage caused to the vehicle or other property.

Types of Motor Insurance Policies

There are three types of motor insurance policies:

Third party cover

This policy covers the insured or the at-fault driver against the liability for injury or death caused to the third party. Moreover, it provides compensation to the third party for the loss of or any damage to their vehicle. This is a statutory requirement in India where the insured is covered as per the Motor Vehicles Act, 1988.

Collision cover

In this policy, the insured is provided coverage against any financial loss incurred due to the damage of the vehicle. As the term itself makes it obvious, the insured can benefit from a collision cover if his/her vehicle suffers from an adverse impact with another person’s vehicle or some object, generally happening on road. However, this type of insurance policy does not take into account any damage or loss caused due to fire or theft.

Comprehensive cover

This policy provides a complete coverage to the insured by including cover against vehicle damage, theft and third-party liability, as well as personal accident cover. The insured can even expand the policy by taking various additional services, such as accessories cover, engine protector, zero depreciation cover, medical expenses, and so on.

Liability Coverage

A ‘liability only’ policy or third party cover insures an individual against claims relating to bodily injuries or death caused to a person(s) (known as the third party), as well as against the loss of or damage to a third-party property caused by the vehicle of the owner. It is a statutory legal requirement as per the Motor Vehicles Act, 1988, and is considered to be one of the most basic and mandatory types of auto insurance coverage.

It is to be noted here that using a vehicle on road without insurance is considered a punishable offence.

Some of the necessary provisions given by insurance authorities are as follows:

  • Failure to comply with the provisions of Section 146 of the Motor Vehicles Act, 1988, is considered a punishable offence that may cause:
    • An imprisonment of three months ‰
    • A penalty of `Rs1000 ‰
    • Or both (according to the Section 196 of the Act)

  • According to Insurance Regulatory and Development Authority of India (IRDAI), Compulsory personal accident cover for owner-driver is also included. Policy can also be extended to cover various other risks like: ‰
    • Personal accident to occupants of vehicle
    • Workmen’s compensation to driver, etc., over and above the cover available to the driver under statute.

  • Subject to the limits of liability as laid down in the Schedule hereto the Company will indemnify the insured in the event of an accident caused by or arising out of the use of the vehicle against all sums which the insured shall become legally liable to pay in respect of :
    • Death of or bodily injury to any person including occupants carried in the vehicle (provided such occupants are not carried for hire or reward) but except so far as it is necessary to meet the requirements of Motor Vehicles Act, the Company shall not be liable where such death or injury arises out of and in the course of the employment of such person by the insured.

    • Damage to property other than property belonging to the insured or held in trust or in the custody or control of the insured.

  • Any driver who is granted permission by the insured to drive the vehicle is considered as insured and indemnified.
  • The insured or his/her representative entitled to indemnity is made compensation to when the insured or the representative fulfils the terms and conditions of the policy.

According to IRDA, the limitations of this coverage are:

Provided always that compensation shall be payable under only one of the items above in respect of the owner-driver arising out of any one occurrence and the total liability of the insurer shall not in the aggregate exceed the sum of `Rs2 lakhs during any one period of insurance.

No compensation shall be payable in respect of death or bodily injury directly or indirectly, wholly or in part, arising or resulting from, or traceable to:

  • Intentional self-injury or suicide
  • Attempted suicide, physical defect or infirmity
  • An accident happens if the driver is under the influence of intoxicating liquor or drugs

Such compensation will be payable directly to the insured or to their legal representatives. In accordance with the provisions of Rule 3 of the Central Motor Vehicles Rules, 1989, at the time of the accident, this cover is subject to the following:

  • The owner-driver is the registered owner of the vehicle insured
  • The owner-driver is the insured named in the policy
  • The owner-driver holds an effective driving license

Liability Exclusions

Generally, personal vehicle insurance policies do not cover for the following:

  • Damage to a vehicle, or injury to a driver or passenger arising out of a contractual liability

  • Damage to a vehicle, or injury to a driver or passenger due to the perils of war or nuclear perils
  • Repetitive loss or damage to a vehicle due to depreciation, wear and tear, mechanical or electrical breakdown, and so on.

  • Since the following kinds of losses are not accidental in nature and do not happen by chance, these are not insurable either:

  • Damage to a vehicle, or injury to a driver or passenger under the influence of intoxicating liquor or drugs ‰‰

  • Damage to a vehicle, or injury to a driver or passenger when the vehicle is being used outside the geographical area specified in the policy ‰‰

  • Damage to a vehicle, or injury to a driver or passenger while the vehicle is used in contravention of the limitations as to use

  • Damage to a vehicle, or injury to a driver or passenger when the vehicle is driven by a person without a valid driving license of the location where driving

Medical Payments Coverage

Reasonable and necessary medical and funeral expenses incurred on account of a vehicle accident get covered under the medical payments coverage policy. Individuals who can be covered include policyholders or any of their family members while using an automobile as a passenger, or as a pedestrian in case stuck in a motor vehicle accident. It also includes other individuals who use a covered automobile driven by the policyholder or his/her family members. The insurer in such a case is liable to reimburse the insured up to the extent agreed in the policy.

It can be so summarised that medical payments coverage routinely pays for medical treatment of injuries from a car accident, regardless of who is found at fault for the accident.

Additionally, medical payments insurance may be found useful for reimbursing:

  • Funeral expenses
  • Injuries sustained by the passengers of a taxi
  • Injuries sustained as a pedestrian or bicyclist after a car accident
  • Required dental care or surgery after meeting with an accident

Exclusions Under Medical Payments

Medical payments coverage does not provide coverage for any expenses in case of injuries caused by an accident while using a motor vehicle less than four wheels. In other words, the policy doesn’t cover for accidents involving two or three wheelers. Also, this medical payments coverage is applicable only in case of motor vehicles and not in case of trailers or similar equipment attached to a vehicle.

Uninsured Motorist Coverage

The Uninsured Motorist (UM) coverage policy provides protection to a policyholder when a faltering uninsured driver injures the policyholder or any member covered under the policy. Such a plan also provides property damage coverage to the injured when the defaulting owner of the vehicle does not hold auto liability insurance.

According to Gary Kramer, J. Scott Sanpietro and James R. Potts, If an insured has UM coverage and an individual covered under the policy is injured or, in some states, has property damage stemming from an accident caused by another person with no motor vehicle insurance, the injured person and the insured can look to this UM coverage to pay for the injuries and in some instances the property damage caused by the uninsured motorist, subject to the applicable limits.

The UM coverage policy with respect to bodily injuries is explained as follows:

  • Uninsured Motorist (UM): UM coverage provides compensation to the aggrieved party for the medical expenses, wages/salary lost or any other expense related to the injury. However, it is to be not- ed that this coverage is provided only when the other party is at fault.

  • Underinsured Motorist (UIM): It is like UM coverage but differs on the point that the person causing the accident is insured but does not have enough to compensate the aggrieved party(ies) for the losses incurred by them. Thus, this policy provides protection to a policyholder when a faltering underinsured driver injures the policyholder or any member covered under the policy.

    An underinsured driver is one whose limits of liability are less than the other person’s UIM limits and is insufficient to cover the losses of the persons who are injured in the accident caused by the underinsured driver. There is no protection offered by UIM coverage against property damage.

In case of an accident covered under this kind of a plan, UIM coverage reimburses to the extent of a maximum of the difference between the other driver’s liability limits and the policyholder’s UIM limits.

Physical Damage Coverage

Physical damage coverage is a combination of comprehensive and collision insurance coverages. This policy provides the widest coverage of all risks indicated under the Motor Vehicles Act, 1988, such as third-party bodily injury or death; third-party property loss or damage; and loss or damage to your own vehicle due to fire, theft or an accident.

The policy also covers: ‰‰

  • Moving the damaged vehicle to the workshop where up to Rs 1500 for private vehicles and Rs 2500 for commercial vehicles are provided

  • Compensation of `Rs2 lakhs to be given to the owner in case of death

  • Compensation for permanent disability; however, the cover is limited to the type and extent of disability.

  • Damage caused to any third party’s property:
    • Minimum cover is limited to Rs6000.
    • The cover is provided up to Rs7.5 lakhs.
    • It is to be noted that third party is compensated only between the above two figures, and the purchaser needs to inquire about it when assessing the insurance proposal. ‰
    • Any person suffering from bodily injuries, but was not in the vehicle then, is covered under the third party clause, which provides unlimited coverage.

According to IRDAI, the damages to a vehicle due to the following perils are usually covered under the ‘Own Damage’ Section of the Motor Insurance Policy:

  • Fire, explosion, self-ignition, lightning
  • Burglary/housebreaking/theft
  • Riots, strikes
  • Earthquake
  • Flood, storm, cyclone, hurricane, tempest, inundation, hailstorm, frost
  • Accidental external means
  • Malicious acts
  • Terrorism acts
  • While in transit by rail/road, inland waterways, lift, elevator or air
  • Landslide/rockslide

Physical Damage Exclusions

The physical damage policy provides comprehensive and collision coverage to auto insurers. Besides the coverage provided, there are various exclusions that are observed under this policy, which are as follows:

  • Depreciation of vehicle
  • Freezing
  • Any breakdown or failure in vehicle that may occur because of mechanical or electrical faults
  • Any issue related to tires that may happen because of road conditions
  • Catastrophic events, such as war or nuclear weapon discharge
  • Vehicle being destroyed or seized by government or civil authorities
  • Vehicle used for delivery purposes
  • Intentional damage caused to vehicle
  • Using vehicle for racing purpose, such as car racing or bike racing
  • Vehicle being used for personal car-sharing programme

Policy Conditions

When both the insurer and the insured agree to an insurance poli- cy contract, they also agree to the policy conditions mentioned in the contract. These policy conditions serve as a basis for claiming the compensation at the time of accident, loss, theft, etc. The compensation that the insurer is bound to pay legally, as well as the conditions in which the insurer becomes liable to pay, is clearly stated in the contract.

Duties After an Accident or Loss

In case of a loss or accident of the policyholder or any member covered under the policy, the insurer has to be notified about the same. The duty of the insurer to provide coverage does not start until the insured or his/her family brings the mishap to notice. The following steps should be taken by the insured after reporting the loss to the insurer:

  • Provide all the details regarding the incident and help in the investigation process.
  • Provide the insurer with the copies of any notices or legal papers. ‰‰
  • If required, the insured has to undergo physical examination.
  • Provide authorisation to the insurer to obtain records related to the medical history.
  • The insured has to provide evidence of the accident or loss to the insurance company.

General Provisions

  • Claim intimation: A notice or claim intimation shall be given in writing to the insurer immediately upon the occurrence of any accident.

  • Reasonable care of vehicle: It is the legal responsibility of the insured to take all the required actions for maintaining the insured vehicle such that it remains in efficient condition so that the insurance company can examine the insured vehicle or any part thereof.

  • Contribution clause: The insurer may require the other insurer(s) to contribute if the insured holds two (or more) insurance policies from a different insurer(s) covering the same liability, as per the insurer’s legal right. Moreover, the insurer does not have the liability to pay more than its agreed proportion of any compensation, cost or expense.

  • Arbitration: If any disparity arises between the insurer and insured, in such a case, for resolving the difference, an arbitrator has to be appointed who is unbiased and has the capability of making a fair decision.

  • Disclaimer: According to Nael G. Bunni, If the insurer shall disclaim liability to the insured for any claim hereunder and such claim shall not, within twelve calendar months from the date of such disclaimer have been made the subject matter of a suit in a court of law, then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.

  • Indemnity: In the event of the death of the sole insured, the policy will not be treated void, but its validity will remain until next three months from the date of the death of the insured or until the expiry of this policy (whichever is earlier). During the given period, the custody of the vehicle will be transferred to the name of the legal heir(s), and similarly, the policy will also be transferred to the legal heir(s). However, in this case, a new insurance policy will be issued in the name of the heir(s) under the Motor Vehicles Act, 1988.

  • Deductibles: When a claim is filed with an insurance company, the insured may have to pay a specific amount as mentioned in the policy for the losses incurred.

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