A car insurance policy is a contract of indemnity. It compensates for the financial loss suffered by you in case of an accident. The principle of indemnity states that you should not make any profit or loss from insurance. Through the insurance claim paid you should be reverted back to the same financial position which you had before suffering the loss or damage. That is why, when a car insurance claim is made, the claim settled is lower than the actual cost of repairs incurred.
Many of you might feel cheated when your car insurance company does not settle your car insurance claim completely. But you should not. There are, in fact, justifiable reasons for deducting some amount from your claim. Want to know what these are? Let's find out :
• Depreciation: As you use your car, your car ages and so do the different parts of your car. In case of claim when your car's parts are damaged and replaced, the actual cost of the damaged parts are calculated after considering the relevant amount of depreciation. Therefore, the amount of depreciation is deducted from the claim settled. However, if you have the zero depreciation add-on cover in your car insurance policy, no depreciation would be deducted from the value of your car's parts and you can get full claim settlement.
• Normal wear and tear of the car and its parts: The normal wear and tear incurred as you use your car is excluded from your car insurance policy coverage. For instance, if your car's tyres are worn off due to very high usage of your car, the expenses incurred in replacing the car tyres, if any, would not be paid. Thus, when you suffer damages and a claim is paid, the claim amount is reduced for the normal wear and tear of the car's parts.
• Services or repairs not linked to the accident: When your car reaches the garage for repairs of the damages, a complete analysis of the car's damages are done. When the work commences, though repairs and servicing is done for the car's damaged parts, there might be servicing or repairs of other car parts which have not been damaged by the accident. For instance, you might get your car's engine oil replaced when your car is being serviced for any damages. The cost of such services and repairs which are not related to the damage cause by the accident would not be paid in your claim and would be deducted from the final claim amount.
• Deductibles and excess: In every car insurance policy there is a compulsory deductible component. This deductible signifies the amount of claim to be paid by you in the event of any damages suffered. So, if the deductible limit is Rs. 2000 and you raise a claim of Rs. 10,000, the insurance company would only pay Rs. 8000 while you would have to pay the remaining Rs. 2000.
Another concept is a voluntary excess. Voluntary excess also represents the portion of the claim which would be paid by you over and above the compulsory deductible. For instance, in the above example, if you have chosen a voluntary excess of Rs.1000, the insurance company would pay you a final claim of Rs.7000, Rs.2000 deducted for compulsory deductible and Rs.1000 deducted for voluntary excess. The only difference between a voluntary excess and a compulsory deductible is that the former is optional (voluntary) while the latter is mandatory (compulsory). If you opt for a voluntary excess, you can get premium discounts. So, the compulsory deductible and the voluntary excess, if any, would be deducted from your claim amount before it is paid.
These four reasons cause insurance companies to deduct some amount before they settle the claim. That is why you do not get the entire amount of claim raised. So, the next time you feel why your claim was not paid in full, refer to these points and you would understand why.