Fundamentals of Motor Insurance

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Perhaps the famous line – in the world of insurance, there aren’t any blacks or whites, but only different shades of grey – plays true whenever Insurance claims are lodged. There could be many caveats or conditions, unknown to the policy holder, that prevent the claim from being realized. Most policy owners are generally unaware of these caveats and conditions regarding the extent and restrictions to the cover available under different situations. Therefore a complete understanding of these caveats viz-a-viz ones needs, has to precede one’s consideration of policies related to the most common insurance – Motor Insurance.

It is common knowledge in law, any road accident which involves two or more motor vehicles, will have two legal parties namely the liable party and the affected party/ies. While the liable party has caused the accident the affected party suffered an injury and/or loss resulting from the accident. In other words both parties involved in the accident could have damaged their respective vehicles and may have sustained bodily injuries. At times, pedestrians, parked vehicles, road-side properties and other physical assets too are hurt/damaged because of the accident.

A Comprehensive Motor Insurance policy covers all losses mentioned above, and reinstates the damaged assets to their respective condition immediately preceding the accident. When the driver of the insured vehicle becomes the liable party, his insurer pays for all losses / damages caused. Such a claim is known as -own damage- claim. On the contrary when the driver of the insured vehicle becomes the affected party his Insurer initially pays for all the losses sustained by the insured. Thereafter the Insurer recovers all such claims from the Insurer of the Liable party. This is known as -recovery claim-.
Besides these normal inclusions to a comprehensive motor insurance policy, there are several other benefits known as ‘Add-on Covers’ which are available at an extra premium.
Some common examples of ‘Add-on Covers’ are:

  • Agency Repair (allows the insured vehicle to be repaired at the authorized garage of the manufacturer),
  • Regional Cover, better known as GCC or country specific cover in this part of the world (i.e. extending the third party &/or own damage losses to cover while driving the vehicle in specified neighboring countries accessible by road),
  • Spare car (when the insured vehicle undergoes repairs, the insurer gives a spare car for use by the insured).

As opposed to the above all countries have a mandated – Third Party Insurance – mandated to protect the life and property of affected parties resulting from accidents caused by the Insured vehicle.

In the UAE, both types of motor insurance policies, viz; Comprehensive and Third Party can be issued for thirteen months also although the vehicle is registered only for twelve months. The thirteenth month is the grace period for renewing a vehicle’s annual registration. During this period only the Third Party Liability automatically gets extended unless otherwise explicitly stated or agreed with the Insurer.

The consequences of driving a vehicle whose insurance policy has expired, tantamount to criminal breach on the part of the owner as well as the driver of the vehicle. This means that in addition to hefty fines for violating the RTA rules, all losses resulting from an accident will need to be met by the owner of the vehicle and driver of the vehicle, depending on the verdict of the competent court.

Having two different insurance policies even of different kinds on the same vehicle is not possible in the UAE, for a couple of reasons. First of all, we should note that each Emirate has a centralized traffic portal on which all car details are registered. Whenever a user buys insurance for a registered vehicle with an already valid insurance policy, the new policy details are added to the vehicle file on the traffic portal and the current one is automatically terminated by the activation of the new policy.

In any case, it is important to understand, one cannot insure the same item twice for the same circumstances, that is a basic and fundamental principle of all insurance, eand motor insurance is no exception!

“No-Claims Bonus” is awarded to drivers who complete a year or more without making any claims on their insurance policies. It’s a reward system where your insurance will typically give you a discount on your policy for every claim-free year. The higher the number of claim-free years, the higher the discount percentage! It is the insurers’ way of rewarding safe and cautious drivers!

Rules regarding No Claim Bonus are there to make sure that every safe driver gets rewarded for their cautious and responsible attitude. There are a number of tips which are noteworthy :

  1. No Claim Bonus is valid even if one switches Insurance providers! All that is needed is a “No Claims Certificate / No Claims Bonus” proof from the current insurer to be shared with the new Insurance provider.
  2. With each year you complete claims-free, the discount percentage gets higher! Driving safely and accruing No Claims Bonus is the most solid way to save on car insurance!
  3. If you get into an accident where you’re found to be not at fault, your No Claims Bonus usually won’t be affected, and you will get a No Claim Certificate at the end of that year.
  4. If you buy a second car, many Insurers allow you to use your No Claims Bonus on both cars and get discounts on both policies! Always ask about this when insuring an additional vehicle and check with your Insurer to offer this valuable discount!

The author Mr. LSH Nair, is an experienced Consultant & Advisor for Insurance procurements & placements in the UAE, whose services are available . Refer for details.