A package motor insurance policy is one of the best ways to protect oneself against the unforeseen financial losses that may arise in case there is any damage to the vehicle. A package policy has two elements — third-party cover and own damage cover.

The third-party cover is a mandatory requirement to keep the vehicle on road and protects the insured from the legal, financial, accidental liability, or property damage that may arise if a third party suffers from damage or loss that is ascribed to the insured vehicle.

The own damage section covers the insured vehicle against myriad natural calamities like floods, inundation, hailstorms, hurricanes, earthquakes, landslides, and rockslides. Additionally, it also covers man-made disasters like riots and accidental external means.

Apart from the basic motor package cover, the insurance industry offers many other useful add-on covers that help build a stronger protection plan and further insulate the insured from financial losses.

One such add-on cover is the vehicle replacement cover. Let us understand more about the cover and how it adds value to the insured.

A Vehicle Replacement cover is helpful in case the insured vehicle meets with a total loss, theft or there is a constructive total loss.

Constructive total loss refers to the situation when the insurer’s liability crosses 75 per cent of the insured declared value of the vehicle. In case of the mentioned scenarios, the insurer will settle the claim in the following ways:

New vehicle

The insurer will replace the damaged vehicle with a new equivalent or near to equivalent vehicle of a similar model, make, specifications and features, considering that such a model is available in the market.

The insurer will also provide a comprehensive policy for the new vehicle and cover the cost of registration and road tax for the new vehicle.

Cash settlement

In case the new equivalent vehicle or near-to equivalent is not available in the market because of production discontinuity, supply shortfall, or any other reason, then the insurer will pay to settle the claim through cash settlement.

The cash amount includes the IDV of the damaged vehicle, the difference between the original ex-showroom price of the vehicle and the insured declared value of the vehicle & additional 5 per cent of the vehicle IDV.

How does it work?

In a normal motor insurance package policy, in case of total loss / constructive total loss, the maximum claim amount payable is restricted to the insured declared value as mentioned in an insurance policy.

Vehicle replacement advantage add-on cover helps the insured to cover the gap between the ex-showroom price of the insured vehicle and the current IDV.

In addition to the ex-showroom value, under the vehicle replacement cover, the insured will also be compensated for the expenses incurred for road tax, registration charges, and cost of insurance to get the car on-road.

Suppose the IDV of the vehicle is Rs 9,00,000; the original ex-showroom price is Rs 10,00,000 and the insured spent another Rs 20,000 on taxes, and registration fees.

In case one has the vehicle replacement cover, the insured will be eligible to be indemnified up to Rs 10,20,000 in case of total loss against the IDV of Rs 9,00,000.

Important conditions

The cover is available only with a comprehensive motor insurance policy, and cannot be availed with only a third-party cover.

It is essential to note that the policy expires after the claim settlement under this cover. Another important point to keep in mind is that the cover under the vehicle replacement policy expires if the ownership of the insured vehicle is transferred to another person.

One more key point to keep in mind is that the vehicle will be declared a total loss or a constructive total loss based on the cost estimates prepared by the authorised workshop of the insurer and assessment prepared by a qualified surveyor.

The cover is applicable only for theft and total loss and does not cover minor damages or dent. It is highly recommended to have this cover for the following situations:

• New car owners
• People living in a theft-prone area
• For people who do not have secured parking places
• People living in natural calamity-prone areas

Now that you understand the advantages of the vehicle replacement add-on and how it further bolsters your motor insurance plan, I suggest that you evaluate your requirements and buy the cover to shield yourself from unforeseen financial losses!

The writer is chief technical officer, Bajaj Allianz General Insurance

MF transfer

My uncle passed away in July this year. He had selected me as a nominee (he had no legal heir) to his mutual fund holdings across 3 different mutual fund companies. What procedure does a nominee have to follow for the transfer of ownership of the mutual fund units? What are the tax implications?

J. Sen, Calcutta

You will need a demat account to facilitate the transfer of mutual fund units. Other necessary formalities include completion of KYC, proof of death of the unit holder, the signature of the nominee duly attested and any other documents required by the asset management company. Since there are three AMCs with whom your uncle had held mutual fund units, the process has to be done individually with each of them. There is no income tax implication on the transfer of ownership of units to a nominee after the death of a unitholder. However, after the transfer of ownership, in case you redeem the units, the gains will be taxable depending upon the nature of the fund — equity of debt.

Advance tax

After retirement, my current income includes income from the Senior Citizens Savings Scheme and bank fixed deposits. The aggregate amount exceeds the exemption limit of Rs 3 lakh for senior citizens. Since my employer no longer pays tax on my behalf after retirement, do I have to pay advance tax?

Shyamal Roy, Calcutta

Under section 208 of the Income Tax Act, every person whose estimated tax liability for the year is Rs 10,000 or more, will have to pay his tax, in the form of “advance tax”. However, section 207 of the Act gives relief from payment of advance tax to a resident senior citizen. An individual of the age of 60 years or above during the relevant financial year not having any income from business or profession is not liable to pay advance tax.

If you have any queries about investing or taxes or a high-cost purchase, mail to: btgraph@abp.in, or write to: Business Telegraph, 6 Prafulla Sarkar Street, Calcutta 700 001.