Page 154 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 8: Insurance Planning

Who can insure? Notes

Owners of the vehicle, Financiers or Lessee, who have insurable interest in a motor vehicle, can
insure the vehicle.

Public Policy

In many countries, it is compulsory to purchase auto insurance before driving on public roads.
Even penalties for not purchasing auto insurance may be levied varying from state to state.
Substantial fine may be charged, license and/or registration may be suspended, as well as
possible jail time may be specified.
Usually the minimum requirement by law is third party insurance to protect third parties
against the financial consequences of loss, damage or injury caused by a vehicle.

What does motor insurance cover?

Motor insurance policies provide cover against any loss or damage caused to the vehicle or its
accessories due to the following natural and man-made calamities: Natural Calamities: Fire,
explosion, self-ignition or lightning, earthquake, flood, typhoon, hurricane, storm, tempest,
inundation, cyclone, hailstorm, frost, landslide, rockslide. Man-made Calamities: Burglary, theft,
riot, strike, malicious act, accident by external means, terrorist activity, any damage in transit by
road, rail, inland waterway, lift, elevator or air.
Motor insurance provides compulsory personal accident cover for individual owners of the
vehicle while driving. One can also opt for a personal accident cover for passengers. The third
party legal liability insurance is compulsory.
Third party legal liability protects against legal liability arising towards others due to accidental
damages. It includes any permanent injury, death of a person and damage caused to his property.

Basis of Premium Charges

Depending on the regulations, the insurance premium can be either mandated by the government
or determined by the insurance company in accordance to a framework of regulations (tariff) set
by the government. Often, the insurer has more freedom to set the price on physical damage
coverages than on mandatory liability coverages.

In case of non-mandated insurance-premium, the premium is calculated usually from the
calculations of an actuary based on statistical data.
Various factors like the car characteristics, the coverage selected (deductible, limit, covered
perils) and the usage of the car (commute to work or not, predicted annual distance driven).

Insured’s Declared Value (IDV)

(a) In case of vehicle not exceeding 5 years of age, the IDV has to be arrived at by applying the
percentage of depreciation specified in the tariff on the showroom price of the particular
make and model of the vehicle.
(b) In case of vehicles exceeding 5 years of age and obsolete models, they have to be insured
for the prevailing market value of the same as agreed to between the insurer and the
insured.

LOVELY PROFESSIONAL UNIVERSITY 149