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Ad-on cover for luxury cars

With India being an emerging economy, demand for luxury or high-end vehicles has been on a steady rise. A little-known segment, luxury cars have come a long way from a meagre 4,000 units in 2007 to selling 33,000 units in 2014. And, with this growth, the niche segment of insurance for high-end vehicles has also expanded.

The recent incident of a Lamborghini Gallardo going up in flames further stresses the need for motor insurance, more specifically for high-end vehicles.

Motor insurance is an absolute necessity, more so when you are talking about Mercedes, Jaguars, Audis, and the like.

While insurance for all vehicles is essentially the same, what sets luxury cars apart is the premium you pay for them. But first, let’s look at the two types of motor insurance:

  1. Third-Party Liability Coverage: It covers damages or injuries that you inflict on someone (or something).

  2. Comprehensive Insurance: It is an extensive coverage spanning car damage, theft and personal accident cover.

Third-party coverage is mandatory but not adequate; so, comprehensive insurance becomes a must. You need coverage for both the actions — damage done by you and to you! But when buying a high-end car, don’t just be limited to these two basic covers. You should also opt for additional covers (or add-ons), specifically:

i) Engine and Electronic Circuit Cover: An EEC cover is extremely useful when driving in India, given the severity of rains. When submerged in water, the engine and electronic circuits of the car can get badly damaged and your regular insurance won’t be of help. For example, for BMW 3 series, getting work done on your engine can typically cost you anywhere between Rs 5 lakh and Rs 8 lakh.

ii) Consumables Cover: If you take this cover, you don’t have to be worried about the damage that can be caused to consumables (parts that can be replaced) due to accidents or normal wear and tear. The cover gives you protection for items that are unfit for further use.

For instance, replacing a set of four tyres for a luxury car can cost you anywhere upward of Rs 60,000. Similarly, replacing the car’s bumper can leave you poorer by at least Rs 65,000.

iii) Registration/Invoice Cover: This add-on cover is useful in case of car theft or significant damage to the vehicle. The insurance company will pay the invoice value of the car, including first-time registration charges and road tax.

Insurance Premiums and Claims

Insurance premiums for luxury cars have been on a steady rise over the last couple of years.

Most recently, for cars exceeding 1,500 cc, insurance premiums for third-party cover have been raised by nearly 30 per cent, effective April 2015. Insurance in premiums is also driven by increase in claims.

According to an IRDAI circular dated April 15, premiums will be decided based on several factors, including average claims, frequency of claims and inflation. Consider this: In March 2013, the ratio of claims to premium paid posted an unprecedented increase of doubling to 80 per cent over the previous year.

To choose the best cover, compare rates and look for a comprehensive cover rather than just low premium. After all, when you buy an expensive car you may as well go for a slightly higher insurance package.

By Yashish Dahiya

First published in The Hindu BusinessLine

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