To claim or not to claim motor insurance

Mukesh Kumar

For most of us, a car is a key asset. It serves your personal as well as business-related travel plans. Considering the importance of convenience (four-wheelers) in our busy lives, we regard our car as a family member. We opt for regular service, wash/cleaning and maintenance to ensure that our car stays in a good shape for long time. We go for a motor insurance to protect the asset from any mishap.

But, the reality of life is that despite taking all reasonable precautions, mishaps do happen – at times due to other person’s fault and sometimes due to reasons beyond our control. A motor insurance protects you from any financial liability that arises out of a mishap involving your car. It protects this asset and helps you in coping with the financial loss caused by accidents, damage or theft.

Decision-making critical

Imagine a situation in which your car is involved in a mishap and there are financial implications to get it fixed. However, claiming the motor insurance on your car may not necessarily be the right thing to do. Let’s see when to file a motor insurance claim or when not.

Where repair cost is lower than no-claim bonus

If you have been a good driver and you’ve had luck on your side, chances are that you have not claimed your car insurance in a while. Your good track record gets you a discount of up to 50 per cent on your next motor insurance premium, depending on the time period for which you’ve not made any claim. This discount is “no-claim bonus (NCB).

A standard motor insurance premium has two primary components: a) own-damage premium and b) third-party premium. The NCB discounts are applicable on the own-damage component and it accounts for more than 80 per cent of your overall motor insurance premium. Thus, the NCB discounts works out to be significant even after ignoring the third-party premium component.

For instance, if you owns a high-end hatchback and are paying an annual premium of Rs15,000, the own-damage premium is Rs12,000. As you have not made any claim in the first year, you will get an NCB of 20% of the own-damage component, which works out to Rs 2,400. If your car is involved in a mishap and the repair cost is more than Rs 2,400, it is advisable that you do not claim the insurance. Paying for minor car repairs keeps your premium costs down and helps you save money in the long-run.

It will help to know that your NCB rises with every claim-free year. This discount on your motor insurance premium is usually 20% for the second year, 25% for the third year, 35% for the fourth year, 45% for the fifth year and 50% for the sixth year. The value of the discount depends on the insurance claims the policyholder makes in that particular year. The NCB can be carried forward and is only allowed, provided the policy is renewed within 90 days of the expiry date of the previous policy. This means, a saving of a minimum Rs 3,000 (at 20%) to a maximum of Rs 7,500 (at 50%) on a premium of Rs 15,000 for a motor insurance on your car.

It is also important to know that once insurance claim is made, the NCB benefit goes back to nil. The next premium will be higher, since it will not include the NCB amount that time. However, insurers offer an “add-on”, which helps the policyholder retain the NCB earned on the policy regardless of a claim on the vehicle. For instance, a policyholder having taken an “add-on” cover would retain his NCB, despite making an insurance claim in the same year. The policyholder can avail the benefit of the “add-on” only up to a maximum limit of three claims per policy.

When third party can pay your repair expenses 

This option is subject to certain conditions. Imagine you have had five claim-free years and are expecting huge NCB benefits, and your car is involved in a mishap with another vehicle. In such case, your options are either to pay repair cost from your own pocket or file an insurance claim or file a third-party insurance claim. If it is conclusively established with the Motor Accident Claims Tribunal that the accident occurred due to the other driver’s fault, then the other party will be liable to pay damages to your car and you will retain your no-claim benefit.

The author is executive director, HDFC ERGO General Insurance Company Ltd. The views expressed in this article are his own