Purchasing a new car is one of the most important investments in an individual’s life. So, it becomes important to protect your car with a comprehensive motor insurance policy and adequate add-ons. While a regular car insurance policy is instrumental in safeguarding your car against possible threats, the add-ons make the policy much more comprehensive. Failing to enhance your cover with necessary add-ons can prove to be troublesome at times.
Let’s try and understand this with an example. Assume that you bought a car worth Rs 30 lakh (IDV – 26,00,000) in the year 2017. Now, a few months back the car got stolen and as per the norms you filed an FIR, but there was no report of its recovery. You get worried if your insurer will cover the loss of the car and, if yes, how much money would you actually get back? When you contacted the insurer, you were told that your motor insurance policy will cover theft and disappearance. Moreover, you had done the right thing by filing an FIR as under any such circumstances, it is quite difficult for the insurer to establish whether the car got really stolen. You were requested by the insurer to submit both sets of the car keys as it was important to establish that the car was not taken away due to your own negligence.
Regarding the claim amount, you were advised that the car qualifies for total loss wherein the insurer would reimburse the total sum assured of the policy, that is, the insured declared value (IDV). Not to forget, IDV is reset every year after deducting depreciation which is based on the vehicle’s age. As your car was 2 years old, it qualified for 30% depreciation and the total amount that the insurer is liable to pay is somewhere between Rs 18,00,000 and Rs 18,50,000, i.e. the IDV of the car after 2 years.
However, you were further informed by your friend that had you bought the exclusive add-on cover named ‘Return to Invoice’ along with your car insurance policy, the total loss claims would have been settled on the original cost of the vehicle instead of the IDV.
Return to Invoice (RTI) is a popular add-on which provides adequate coverage and it basically covers the gap between the insured declared value and the invoice value of the car. Under RTI add-on, you get the entire amount of loss (the total on-road price paid for the car) that you incurred from losing the vehicle. The RTI generally costs around 10% more than the normal comprehensive insurance policy. However, one must know that if the same model and variant is available at a lower than the original purchase price, the former is considered.
It is a common misconception amongst the people that RTI can be availed to compensate for the bill of small dents and repair. The fact is that Return to Invoice only helps you in retrieving financial loss of a stolen car or a car that has been damaged beyond repair. Considering the depreciation that is applied on new vehicles at 5% for the first 6 months from Day 0 of purchase, and 10% for each year going forward, you could lose a lot of money even if your insurance company compensates you for total damage of your vehicle. The RTI add-on plays a great role in bridging this gap. An important thing to know is that RTI is only applicable for cars that are up to 3 years old. RTI will not be offered to you after a couple of years of policy renewal i.e., when your car gets more than 3 years old.
(By Tarun Mathur, Chief Business Officer-General Insurance, Policybazaar.com)