In major cities, people prefer to travel by train or 2-wheeler even when they own a car to avoid traffic and reduce fuel expenses. However, irrespective of the kms you drive your car, the car insurance premium still remains the same. Moreover, there are no incentives given to the people with better driving skills. It is not rational, right?

Thanks to digitalisation & modernisation in motor insurance, there are some better & newer options available in the market in the form of telematics or usage-based vehicle insurance covers.

What is Telematics in Insurance?

In 2022, IRDAI permitted Telematics / Usage-based insurance that permits Pay As You Drive (PAYD) and Pay How You Drive (PHYD) car insurance covers. Earlier, Motor Insurance in India, did not consider how different client categories possess a different degree of risk, thereby not penalising rash drivers with higher premiums.  

By using telematics devices fitted in the car, insurers can now take a client-specific pricing approach. I.e. Depending upon the distance driven, how efficiently the vehicle is driven, time of driving, braking patterns, lane discipline, etc, the premium can be charged to a client. Telematics is a technology that uses telecommunication & informatics to analyse risks related to motor insurance. There is a device that consists of a GPS that tracks the location of the vehicle. It also gives information about the car’s speed, fuel consumption, braking, etc. 

Pay As You Drive

Pay as you Drive car insurance allows the client to pay for insurance based on the distance driven, rather than standard car insurance policies that depend on geography, make-model, and age of the vehicle to determine premiums. It means that those who rarely drive their cars will pay less premium for their car policy. For people who are not out on the road often, their risk of an accident is also low, and hence, their car insurance premium should reflect this.

Insurance companies have made slabs of different kilometre limits that the client can select at the time of policy buying/renewing. For example, limits of 5000 km, 7500 km, 10,000 km. If they exhaust the limit, they can top-up additional kilometres of 500 km, 1000 km, and 1500 km.

There are several advantages associated with PAYD like:

• Monitoring speed and tracking real-time location of the car.
• Premium discount for good drivers and customisation of policy.
• Such devices help in theft protection and break-down assistance, i.e. location updates on a real-time basis, which helps in better customer service and higher customer satisfaction.

Unlike other motor policies, these newly introduced coverages/add-ons are styled to give the clients more control and better savings on their motor insurance premiums.

Claim Process

If you raise a claim against the policy, the vehicle should be within the declared (selected slab) distance. For instance, if you selected a 7500 km limit, then the car should not exceed this distance limit at the time of the claim. If your car is within the limit, your claim will be processed as per normal policy terms & conditions, similar to the standard comprehensive car insurance policy.

Important Points to Consider While Taking Pay as You Drive for Your Vehicle

1. Owning more than one car

If you have more than 1 car, then you can buy the Pay as You Drive insurance for the car that is used rarely or has the least distance travelled, ideally less than 7,500 km or 10,000 km in a year.

2. Car Usage

If your yearly car usage is less than 7,500 km or 10,000 km, or if you commute to work/office using public transport, or if you travel out of town frequently and use your car rarely, then Pay as You Drive is the optimal choice of car insurance policy for you.

Cultivating positive habits for your financial health can prove to be pivotal for your financial success. Even subtle adjustments in lifestyle and savings practices can make a huge difference, for one good habit can create a ripple effect. Bringing discipline and consistency to your investment pattern and following fundamental financial health practices such as goal-based investing, budgeting, timely payment of debt, and insurance planning can lead you to a financially prosperous future. 

Insurance Policy is an agreement or a legal contract between the insurer, (the insurance company), and the insured or the policyholder /proposer. It is based on the information the insured provided in the proposal form, making it the most important part of the entire contract. An insurance company offers a policy on the basis of a proposal form and other information related to the insured detailed therein. To do so, the insurer seeks all the relevant information from the proposer in order to underwrite the risk.

The proposal form includes

• basic information such as address, age, name, education, income, etc; 
• other information like occupation, medical history, lifestyle habits like smoking / drinking, etc 

The Principle of Utmost Good Faith

Insurance operates on the principle of utmost good faith which means that both, the insurance company and the insured, have to disclose all material facts that may affect the insurance policy. It is trusted that the proposer would declare the same in good faith. Likewise, the insurance company provides all relevant information about the policy in the documents and policy terms. Thus, it becomes important that the proposer understands and asks for clarity from the insurance company in case of any doubt on the policy and also gives accurate, complete and comprehensive information as requested in proposal form.

What is a Material Fact?

A material fact may be understood as any information that may influence the judgement of the insurance underwriter in deciding whether to accept a risk or not and if so, at what premium. However, If the insurance company finds out that the policyholder has hidden or not stated any material information then the insurance company can cancel the policy & decline the claim, if any. It may thus be better to declare information if in doubt whether to declare or not. 

The Moratorium Period

If the policyholder continues the insurance cover for 8 years without a break, the insurance company cannot deny a claim. This 8 year period is called the moratorium period. After this moratorium period, a claim cannot be denied by the insurance company due to misrepresentation or non-disclosure. The only exceptions are cases of fraud and permanent exclusions specified in the policy contract. This removes anxiety on whether a genuine claim will be accepted or not by the Insurance company

Filling the Proposal Form… 

The accuracy of details entered in the proposal form is critical to the insurance policy. Some people sign and hand over the blank insurance form to the agent. It is likely though that the agent may miss out on some important details that only you are aware of, and your claim may be rejected on the basis of missing or incorrect information provided in the proposal form. Ideally, the proposer should carefully read this form and take time to fill it by himself and not leave it to the agent. Once filled, the proposer should verify that correct and complete details are given. Further, if the proposal form is in an unfamiliar language, one should get it clearly explained and understood before signing. Below are some of the most important points while filling the proposal form…

1. Mention Correct Details: Many people become casual while filling up the proposal form and may not provide the correct details related to age, income, qualification, contact details, address and so on. The contact info is used by the insurer to contact you when a claim arises. Many claims and the maturity/claim amounts remain unpaid as insurers are unable to reach the policyholders at the outdated or incorrect communication details provided by them. Further, details like BMI, health status, family’s medical history, occupation, education, income etc; of the proposer and all the insured members have a major influence on the decision of the insurance underwriter. It may result in rejection of the proposal or hike in the rate of premium.

2. Disclosure of Medical Condition: Many times current health condition is left undisclosed so as to obtain better coverage for lower premium or to avoid the waiting period or rejection. But while making the claim, if it is found that the medical history does not match, the claim might get rejected and/or policy may be cancelled ab-initio. Therefore, complete medical history must be disclosed in the proposal form.

3. Disclosure of Personal Health Habits: The proposer must inform about his/her lifestyle habits like the consumption of alcohol, tobacco and other drugs. We are all aware that addictive/intoxicating substances have a negative impact on health and thus constitutes material fact, having consequences on the risk underwriting by the insurer.

4. Disclosure of existing insurance policies: One must mention all the policies taken from the same insurer as well as other insurers. If you already have an insurance policy, the insurer will offer only the balance of the cover, that is, max cover allowed as per eligibility & underwriting guidelines - sum assured of the existing cover. Non-disclosure or inaccurate declaration of existing insurance policies may result in counter offer or proposal cancellation. In fact, if the insurer comes to know about a pre-held policy that was not declared at proposal stage, it can reject the claim and/or cancel policy on the basis of material non-disclosure.

5. Mention occupational details accurately: Occupation is a crucial parameter to measure health, accident and death risks. For example, if you work in a chemical factory, the risk to your life/health will be much higher. Persons with hazardous occupations or dangerous hobbies like paragliding, parasailing, rock climbing, etc. are charged more premium or the insurance company can even refuse them coverage.

6. Mention Nominee Details: It is mandatory to fill the nominee details in the proposal form in order to make sure that the benefit reaches the right hands.

Conclusion

It is obvious that the proposal form is the backbone of each policy. Hence, those buying an insurance policy must be alert & careful while filling this important document, failure of which may lead to adverse consequences such as rejection of claim or insurance cover. It is critical to ask questions to your insurance company or insurance advisor or an expert, regarding the understanding of the proposal form in case of any doubt. It is better to let the underwriter assess your risk appropriately, rather than being sorry at the time of a claim after you have paid the premiums. 

In the investment world, few names resonated as profoundly as Charlie Munger, the renowned vice chairman of Berkshire Hathaway and the long-time business partner of Warren Buffett. It is no surprise that his recent passing away at the age of 99 cast a shadow across the global investment community. Munger’s wisdom transcended beyond just investments and is universal and timeless in many ways and will continue to guide and inspire investors across the world. In this article we attempt to explore this wisdom, distilled into key principles and learnings that hopefully will inspire us as we progress in our own investment journey. 

1. Principle of Simplicity and Understanding

Munger often stressed the importance of simplicity and understanding in investing. Munger saw complexity as a trap, laying a shadow in the investment decisions. For Indian investors, this principle is particularly relevant in a market known for its dynamism and complexity. Munger advocated for investing in businesses and avenues that one can easily understand, emphasizing that if you don't understand it, you have no business investing in it. Munger believes that beauty lies not in complexity but in mastering the fundamentals, having deep understanding of what works and then letting them guide the investment decisions. 

2. Value Investing and Intrinsic Value

Munger, along with his long-time collaborator Warren Buffett, was a staunch advocate of value investing. Value investing involves identifying undervalued stocks with strong fundamentals and long-term growth potential. In the Indian context, where market fluctuations are a norm, understanding the intrinsic value becomes crucial. By seeking out companies trading below the intrinsic value, investors can aim to capitalize on market efficiencies. Munger's principle encourages investors to focus on the long-term potential rather than short-term market trends as markets would tend to recognise value in the long-term. 

3. Margin of Safety

Munger was a risk realist and the concept of a margin of safety was integral to Munger's investment philosophy. With the equity market, known for its volatility, having a margin of safety can protect investors from unforeseen downturns. Munger believed there is always a room for error, so it is wiser to have a cushion in terms of excess value that can protect you against making an error. Thus, he looked for buying businesses with strong fundamentals at a discount to their intrinsic value. The idea of margin of safety when practiced would give a buffer allowing investors to sleep soundly even when things or markets behaved unexpectedly. This principle is also at the heart of a well-diversified portfolio that balances risk and return, safeguarding wealth against market volatility.

4. The Power of Patience

Patience, according to Munger, is a virtue in investing. The ability to stay patient is invaluable, especially in the Indian markets where we see both rapid growth and occasional setbacks. Munger guides investors to avoid emotional, impulsive and reactionary decisions, allowing investments to mature and flourish over time. He saw the market as a long-term game, where patience was the ultimate winning strategy. 

5. Continuous Learning and a Diverse Mental Toolkit

Munger was no less than a learning machine, a voracious reader with a broad range of interests in diverse subjects and disciplines, including history, psychology, and even physics. He emphasized on having a curious mind and the importance of building a diverse ‘mental toolkit’ to tackle the complexities of investing and the ability to connect the dots. As investors we benefit from continuous learning and exploring, not just about investments, but on diverse interest areas. The more knowledge and tools we have, the more problems we can understand and solve and the more success we can find, not just in investing but also in life. 

6. The Importance of Inversion

Munger often recommended inversion as a problem-solving tool. In the context of investing, this means considering potential risks and downsides before making a decision. Instead of seeking success and bargains, Munger would ask “how to avoid failure?”. This would lead one to expose hidden flaws, pitfalls and simplify complex situations. Thinking forward is not enough, true wisdom comes from examining the problem backwards. By not being stupid, investors can better adopt this principle to enhance risk management, avoid uncertainties and make more informed decisions. 

7. Long-Term Greed Over Short-Term Fear

Munger famously stated, "The first rule of compounding is to never interrupt it unnecessarily." This encapsulates the essence of focusing on long-term goals and resisting the temptation to react to short-term market fluctuations. In equity markets that can be influenced by various external factors, Munger's principle encourages investors to maintain a steadfast approach to wealth creation. Munger believed that the short-sighted "fear-driven selling" creates buying opportunities for those who can maintain a long-term perspective. The long-term greed is in a positive context indicating trust in the power of compounding and the resilience of great businesses and economies. It was about playing the long game, holding conviction through temporary fluctuations and letting the magic of time work its wonders.

8. Keep an Eye for Opportunity Cost

Munger saw opportunity cost not just as an economic concept but as an invisible tax for investors. To put it simply, every "yes" to an investment means that it was a “no” to countless others which may include possibly much better options with higher returns potential. This opportunity cost silently stops us from enjoying good returns and can potentially make our investment choices look mediocre. Looking for opportunity costs doesn’t mean we get stuck or delay decision making but means that we need to focus and make the most of the good opportunities available and to keep an eye for comparing alternatives rationally and logically. This time, we will intuitively become better decision makers and explore the full potential of our investments. 

Conclusion:

Lessons from Charlie Munger's life offers a roadmap, a timeless framework for all investors. As one can imagine, what is written above is just a few buckets from the ocean of wisdom which we can aspire to learn from and implement in our investment journey. The idea is to think deeply, act rationally, and embrace the long game. In a world of noise and distraction, Munger's voice calls for intellectual humility, independent thinking, and a deep respect for the power of compounding. The market is not just a place to make money, but a place for developing a sound thinking mind, shaping character and behaviour and perhaps, even becoming a better person in life. 

The number of deaths in road crashes in India was at an all-time high in 2022 with fatalities above 1.68 lakh. This is approximately 462 deaths per day or a death every three minutes. The number of injured persons in accidental crashes stood at 4.43 lakh and these are only the reported accidents. Unreported accidents and their financial impact would be much higher.

With the increase in vehicle sales over the last few years, having a comprehensive car/two-wheeler insurance policy is more important than ever. Motor insurance provides essential financial protection against accidents, theft of vehicles and damages to third parties. Unfortunately, many people continue to have a few misunderstandings and misconceptions surrounding vehicle insurance. In this article, we will attempt to understand and clear some of these myths. 

What are the different myths about vehicle insurance?

Myth 1: Motor insurance is not required if I am a good driver

Some vehicle owners believe that car insurance is optional. Those who drive cautiously and carefully, feel they do not require it. However, this is not the right thought process. As we all can understand, accidents can happen at any time and may even happen due to the mistakes of others. Thus, every vehicle on the Indian roads must have adequate insurance with third-party liability insurance cover being the bare minimum necessity. With adequate insurance, you will be protected from any legal liability in case a third party or his/her property gets damaged due to an accident involving your vehicle. With proper insurance, you would even be protected against damages to your vehicles. Remember, being a good driver is not enough, you need to also have adequate papers and insurance taken on the vehicle.

Myth 2: Third-party cover is adequate 

Motor third-party liability only insurance policy is mandatory in India. As per Indian Motor Vehicle Act 2019, if you are driving without valid motor insurance, you will be charged a hefty penalty and may even attract imprisonment. The IRDAI (Insurance Regulatory and Development Authority of India) determines the third-party premiums. The policy covers the loss or damage to a third party person or property while you are driving. Most people believe this should be sufficient but it is not. Such a policy does not cover the expenses incurred when your vehicle gets damaged. Own Damage Cover or Comprehensive policies cover your third-party liability and even protect you from financial losses due to theft, accidents, and natural disasters that damage your vehicle.

Myth 3: Motor insurance is too expensive

Car/ Two wheeler insurance offers a range of coverage, like third-party liability, personal accident and own damage cover that includes damages to your vehicle. However, multiple factors determine the premiums. For eg; 

1. Cubic capacity (cc) of your car - if your car’s cc is less than 1000 cc lower premiums are charged and if cc is more than 1500 cc higher premiums are charged. 
2. Zone - if your vehicle is registered in Zone A city (Mumbai, New Delhi, Kolkata, Bengaluru, Chennai, Hyderabad, Pune and Ahmedabad), a higher premium is charged than Zone B (rest of India).

Before making a decision, do a cost-benefit analysis of the premium against the cost of repairing your car after an accident or replacing your vehicle due to theft or total loss. What would be the cost of that? There are motor policies with different & comprehensive add-on coverages at very affordable premiums which you can customise as per your preference.

Myth 4: It is better to make and benefit from claims

Many believe that insurance is only for those people who want claims. It is only a perception that you must file claims to benefit from the policy. Motor policies offer very good discounts on premiums for careful drivers. Similarly, It is also not essential to ask the insurance company to pay for minor dents and scratches. Such a step would stop you from enjoying the no-claim bonus (NCB) and increase your premium for the subsequent years. Also, it may lead to the insurer denying some add-ons upon renewal. Therefore, it is always advisable to carefully evaluate when to use your insurance policy to file claims and to benefit from the insurance coverage without impacting your wallet or future coverage.

Things to explore before you buy car insurance:

Comprehensive motor insurance offers 360-degree financial protection for you and your vehicle. But before you decide to buy a policy, must analyze & understand the following factors:

1. Your coverage needs

Take a moment to assess your individual needs. Ask yourself what level of coverage you require. Cautious drivers and those who park in secure areas and drive less frequently may not need a high sum assured. On the other hand, people who cover long distances regularly or frequently drive through busy areas may need more protection. Consider your requirements and select a plan accordingly.

2. The various plans 

Don’t settle for the first insurance plan that comes your way. Take the time to compare different policies from various insurance providers. Look beyond just the premium amount. Consider the coverage offered, the network of garages for cashless repairs, and the claim settlement process.

3. The policy inclusions and exclusions

Read the policy document thoroughly to understand the exclusions and inclusions. Different insurance plans might have varying coverage options for engine damage, natural disasters, and roadside assistance. Knowing what is covered and what isn’t can save you from surprises during a claim.

4. The add-ons

Many insurers offer add-on covers that can enhance your policy’s coverage. These may include zero depreciation cover, engine protection, and consumables coverage. Having insurance policy add-ons can give complete protection to your vehicle. To be able to enjoy the extended benefits of motor insurance, you should carefully choose insurance add-ons as per your requirements.

5. The claim-settlement ratio

Claims are the litmus test for any insurance policy. The claim settlement ratio of an insurance company mirrors its capability in processing and settling claims. A higher claim settlement ratio indicates faster claims handling and high reliability. Examine the claim settlement ratios of different insurers before deciding.

Conclusion:

Motor insurance is a crucial aspect of being a responsible vehicle owner and citizen of India. It helps to fulfil legal burdens and provides financial security in case of an untoward event. By busting common myths surrounding vehicle insurance, we’ve illustrated the importance of making informed decisions about insurance coverage. But considering the evolving needs of cars, today car owners need comprehensive protection for their vehicles to enjoy driving without worrying about financial loss. Insuring with the right motor insurance ensures a smoother journey on India’s busy roads.