Essential Commercial Vehicle Insurance Terms

10 Most Common Commercial Vehicle Terms

Before understanding terms related to your commercial vehicle insurance, it is important to understand your vehicle. Here are the top 10 terms that every commercial vehicle owner must know:

1. Gross Vehicle Weight (GVW)

   Gross Vehicle Weight (GVW) is the maximum permissible weight of a commercial vehicle. GVW determines vehicle classification, permit requirements, insurance premium, and road tax. It includes the following:

   • Vehicle's own weight
   • Driver
   • Passengers (if applicable)
   • Fuel
   • Cargo

2. Unladen Weight

   Unladen weight refers to the weight of the vehicle without passengers or cargo. It excludes the load being transported.

3. Payload Capacity

   Payload Capacity is the maximum weight of goods or passengers that the commercial vehicle is legally allowed to carry. If you overload your vehicle beyond the accepted payload capacity, you may be fined.

   * Payload Capacity = GVW − Unladen Weight

4. Goods Carrying Vehicle

   A goods-carrying vehicle is designed exclusively to transport goods. Commercial vehicles, such as mini trucks, pick-up vans, containers, tippers, tankers, etc., are all made for transporting goods from one place to another.

5. Passenger Carrying Vehicle

   Passenger-carrying vehicles are used to transport people. Taxis, cabs, school buses, tourist buses, etc., must have an appropriate passenger carrying vehicle insurance. The premium is decided based on the number of passengers the vehicle is allowed to carry.

6. Permit

   A permit is an official authorization allowing a commercial vehicle to operate legally. Depending on the purpose and route, different permits may be required, such as a national permit, state permit, goods permit, tourist permit, etc. Operating a commercial vehicle without a valid permit can lead to fines and legal consequences.

7. Fitness Certificate (FC)

   A fitness certificate confirms that the commercial vehicle meets the required safety and environmental standards. It is one of the most important documents to legally ply a commercial vehicle on the road as per the Motor Vehicles Act, 1988. Commercial vehicles must renew their Fitness Certificate periodically to remain roadworthy.

8. Pollution Under Control (PUC) Certificate

   The PUC certificate verifies that the vehicle's emissions are within the permissible pollution limits. Driving a commercial vehicle without a valid PUC certificate can result in traffic challans.

9. National Permit

   A national permit allows goods vehicles to transport cargo across multiple states without obtaining separate permits for each state.

10. Fleet

    A fleet refers to multiple commercial vehicles owned or managed by an individual, company, or transport operator.

30 Essential Commercial Vehicle Insurance Terms

Check out some of the most common and important terms related to commercial vehicle insurance that will help you understand your policy wordings:

1. Commercial Vehicle Insurance

   Commercial vehicle insurance is a motor insurance policy specifically designed for vehicles used for business purposes. It protects vehicle owners against financial losses arising from accidents, theft, fire, natural disasters, and third-party liabilities.

2. Third-Party Commercial Vehicle Insurance

   Third-party commercial vehicle insurance is a mandatory cover as per the Indian Motor Vehicles Act, 1988. It covers legal liabilities arising from injury to third parties, death of third parties, or damage to third-party property only. It does not cover damages to the insured commercial vehicle.

3. Comprehensive Commercial Vehicle Insurance

   A comprehensive commercial vehicle insurance policy covers both third-party damages and losses incurred by the insured vehicle. It covers several types of risks from accidents, natural calamities, fire, man-made disasters,theft, and more. Policyholders can even choose optional add-ons to further enhance the policy coverage.

4. Own Damage (OD) Cover

   The own damage cover pays for repairs or replacement costs if the insured commercial vehicle is damaged due to accidents, fire, natural disasters, theft, vandalism, etc. It does not include third-party liabilities

5. Insured Declared Value (IDV)

   IDV of commercial vehicles is the current market value of the commercial vehicle determined after accounting for depreciation. It represents the maximum amount payable by the insurer in case of total loss, constructive total loss, or theft. It directly impacts the premium.

6. Premium

   Premium is the amount paid by the policyholder to keep the commercial vehicle insurance policy active. The policy premium depends on several factors, such as vehicle type, age of vehicle, IDV, usage, claim history, add-ons, etc.

7. Policyholder

   The policyholder is the individual or business entity that purchases the commercial vehicle insurance policy. The NCB is also tied to the policyholder and not the vehicle.

8. Insured Vehicle

   The insured vehicle is the commercial vehicle whose financial interest is protected under the insurance policy. The insurance company is liable to provide financial protection against different types of risks .

9. Claim

   A claim is a formal request submitted to the insurer for compensation against a covered loss. It can be due to accidents, theft, fire, natural disasters, third-party liabilities, etc. Policyholders can raise either a cashless claim or a reimbursement claim.

10. Cashless Claim

    In a cashless claim, repairs are carried out at the insurer's network garage, and the insurer settles the approved repair cost directly with the garage. The policyholder only pays for non-covered expenses and deductibles.

11. Reimbursement Claim

    Under a reimbursement claim, the policyholder pays for repairs first and later submits the bills and documents to the insurer for reimbursement. Reimbursement claims may arise if the insured commercial vehicle is repaired at a non-network garage.

12. Deductibles

    A deductible is the portion of the claim amount that the policyholder will have to pay out of their own pocket and is not covered by the insurer. There are two types of deductibles in commercial vehicle insurance, that is compulsory deductible and voluntary deductible. Compulsory deductibles are decided by the insurer, and voluntary deductible is decided by the policyholder. Choosing a higher voluntary deductible usually reduces the premium.

13. No Claim Bonus (NCB)

    NCB in commercial vehicle insurance is a reward offered to the policyholder for consecutive claim-free policy years. It is a discount on the own-damage premium when you renew your comprehensive commercial vehicle policy. It is not available with a third-party cover and is transferable when you switch your insurer or sell your vehicle.

14. Depreciation

    Depreciation refers to the reduction in the value of the commercial vehicle and its parts due to general wear, tear, age, and usage. The insurer deducts depreciation while settling claims unless the zero depreciation add-on is purchased. As per IRDAI, commercial vehicle insurance companies must deduct the depreciation as per the following table:

    Components	Depreciation Rate
    Rubber/nylon/plastic parts, tyres & tubes, batteries, air bags, paintwork	50%
    Fibre glass parts	30%
    Glass parts	Nil

    Vehicle Age	Rate of Depreciation
    Below 6 months	5%
    6 months to 1 year	15%
    1 year to 2 years	20%
    2 years to 3 years	30%
    3 years to 4 years	40%
    4 years to 5 years	50%
    Above 5 years	Mutually decided between the insurer and car owner

15. Zero Depreciation Cover

    Zero depreciation cover for commercial vehicles is an optional add-on, which ensures that the insurer does not deduct depreciation on repaired and replaced parts during claim settlement. This helps to reduce the out-of-the-pocket expenses and also ensures that insurance companies provide a better claim payout.

16. IMT 23 Cover

    The IMT 23 add-on is an optional cover to protect parts that are not covered under basic policy, such as tyres and tubes, lamps, mudguards, bumpers, side panels, bonnet, headlights, etc. With this add-on, the mentioned parts will be repaired and replaced as per the applicable depreciation cost.

17. Roadside Assistance (RSA)

    Roadside assistance or the RSA add-on cover for commercial vehicles provides 24x7 emergency assistance services, such as flat tyre replacement, battery jump-start, towing, fuel delivery, etc.

18. Return to Invoice (RTI)

    Return to invoice cover for commercial vehicles pays the invoice value of the vehicle instead of the depreciated IDV if the insured vehicle suffers a total loss or theft. With this add-on, policyholders are reimbursed the vehicle cost as per the invoice, registration charges, road tax paid, and even the first insurance cost.

19. Endorsement

    An endorsement is an official modification made to an existing commercial vehicle insurance policy. Some common endorsements include a change of vehicle ownership, an address update, an engine number update due to replacement, etc.

20. Policy Renewal

    Policy renewal refers to extending insurance coverage before the expiry date to ensure uninterrupted protection and legal compliance.

21. Grace Period

    The grace period is the limited time allowed after policy expiry for renewal. In the grace period, the insurance company does not provide any coverage against the damages and your commercial vehicle is completely uninsured. However, it is just a period where you might not lose your accumulated NCB and gives you some time to renew your policy as soon as possible.

22. Add-on Covers

    Add-on covers with commercial vehicle insurance are optional benefits available with comprehensive commercial vehicle insurance at an additional premium. They help you cover the risks that are generally not included under a standard policy. Some common add-ons for commercial vehicles are zero depreciation cover, roadside assistance, return to invoice, consumables cover, IMT 23, IMT 24, etc.

23. Exclusions

    Exclusions are situations where the insurer will not pay the claim as they are not covered under your commercial vehicle insurance. Some common exclusions include normal wear and tear, mechanical or electrical breakdown, damages incurred under the influence of alcohol or drugs or while the driver is without a valid licence.

24. Hypothecation

    Hypothecation is a legal arrangement in which a commercial vehicle is purchased with a loan. In this case, the financier's name is recorded in the Registration Certificate (RC), and any addition or removal of hypothecation requires an endorsement in both the RC and the insurance policy.

25. Constructive Total Loss (CTL)

    Constructive total loss (CTL) occurs when the estimated cost of repairing a damaged commercial vehicle exceeds 75% of the vehicle's IDV. In such cases, the insurer generally declares the vehicle non-repairable and settles the claim as a total loss instead of paying for repairs.

26. Network Garage

    A network garage is a repair workshop that has a tie-up with an insurance company to offer cashless repair services. If a commercial vehicle is repaired at one of the insurer's network garages, the insurer directly settles the approved repair costs with the garage, while the policyholder only pays for deductibles or non-covered expenses, if any. Using a network garage can simplify the claim process and reduce immediate out-of-pocket expenses.

27. Break-in Inspection

    A Break-in Inspection is a physical inspection conducted by the insurer when a commercial vehicle insurance policy has expired and is being renewed after the grace period. The inspection helps the insurer assess the vehicle's current condition before renewing the policy. The inspection is generally conducted for a comprehensive policy.

28. Geographical Area

    The geographical area refers to the territorial limits within which a commercial vehicle insurance policy remains valid. Standard commercial vehicle insurance policies generally provide coverage for incidents occurring within India. If a commercial vehicle is intended to operate outside the standard geographical limits, policyholders can opt for the IMT 1 add-on cover.

29. Towing Charges

    Towing charges are the expenses incurred to transport a commercial vehicle from the accident or breakdown location to the nearest garage or repair facility. To avoid these costs, policyholders can either check if towing is included in the RSA add-on or if it is separately sold under the towing add-on for commercial vehicles.

30. Overloading

    Overloading means carrying passengers or goods beyond the vehicle's permissible capacity or applicable weight limits. It can increase the risk of accidents, tyre failure, braking problems and vehicle damage. Overloading can also lead to claim rejection. If an accident occurs while the vehicle is overloaded and the overloading contributed to the loss, the insurer may assess the claim based on the applicable policy terms and conditions. Commercial vehicle owners should therefore operate within the permitted load limits.

Tips for Commercial Vehicle Owners

Once you have read the important terms associated with commercial vehicle insurance, here are some tips:

• Choose the correct type of commercial vehicle insurance based on vehicle usage.
• Renew the policy before expiry to avoid coverage gaps.
• Keep permits, Fitness Certificate, PUC certificate, and registration documents up to date and with you at all times to legally drive in India.
• Declare the correct vehicle usage while purchasing commercial vehicle insurance.
• Avoid overloading beyond the permitted capacity, as any accident or damage will not be covered.
• Know the deductibles and policy exclusions before filing a claim.
• Consider add-on covers for commercial vehicles that operate frequently or over long distances.
• Notify the insurer promptly after an accident or theft to facilitate claim processing.