Switch to Digit Insurance

5 Important Motor Insurance terms you should know

1. Third Party Policy

2. Comprehensive Policy

3. NCB or No Claim Bonus

Digit Simplification: Good behaviour should be rewarded! Rewards for being a good driver all year long! 

No Claim Bonus or NCB is a sort of discount that insurance companies offer on the premium of your motor insurance if you haven't made any claims during the previous year.

So, if you have been driving safely during the policy year, your insurance company rewards you with a discount on your premium at the time of renewal. This no claim bonus discount ranges from 20%-50% and increases with each claim-less year.

Here is how the discount for a No Claim Bonus is usually calculated:

Claim free years

No Claim Bonus

After 1 year


After 2 years


After 3 years


After 4 years


After 5 years


The best part? You can even carry forward your NCB to a different insurance company when changing policies, and even transfer the NCB that you have earned when you sell your car and buy a new one.

Just remember to renew your insurance on time to make sure that your NCB holds good. 

4. IDV or Insured Declared Value

Digit Simplification: So you know exactly how much your car is worth! 

The IDV or Insured Declared Value of your vehicle is, in simple terms, the market value of your vehicle. Basically, it refers to the maximum amount which an insurance company will pay in case of a total loss or total damage of your vehicle.

So, how is it calculated? The IDV of any vehicle is usually calculated by adjusting the manufacturer’s selling price for depreciation according to the age of the vehicle.

And in case your vehicle also has externally fitted accessories, IDV for them would be calculated separately and then added on.

Essentially, IDV = (Manufacturer’s listed price – Depreciation) + (Cost of accessories – Depreciation)

This is the depreciation schedule usually followed for calculating the insured declared value of a vehicle:

Age of vehicle

% of Depreciation

Not exceeding 6 months


Exceeding 6 months but not exceeding 1 year


Exceeding 1 year but not exceeding 2 year


Exceeding 2 year but not exceeding 3 year


Exceeding 3 year but not exceeding 4 year


Exceeding 4 year but not exceeding 5 year


It is very important that the IDV of your vehicle is correctly calculated and given at the time of buying your motor insurance policy, as it ensures that your vehicle is not under-insured. Your premium too is affected by your IDV. So, always make sure it is accurate. 

5. Depreciation and Zero Depreciation

Digit Simplification: Just because your vehicle is old doesn't mean it shouldn't get its full value.

Depreciation refers to the depreciation in the actual value of your vehicle and its parts over time, mostly due to wear and tear.

In fact, the second a new vehicle is out of a showroom, it is considered to have depreciated in value by 5%!

The depreciation of your vehicle is based on its age (see above). When an insured vehicle has seen any kind of total loss (like irreparable damage or theft), and you file a claim, the insurer typically deducts this depreciation cost before making the payment.

When there is a partial loss scenario such as minor vehicle damage, the depreciation on its parts will be considered.

In case of a car, the various parts and accessories depreciate at varying rates as follows:

Vehicle part


Parts with high wear and tear - rubber parts, plastic components, battery, tubes and tires, etc.


Fiberglass parts


Metallic parts

0% to 50%, based on the age of the vehicle

But what is zero depreciation, you might be wondering. Basically, this is an add-on cover that you can get, where your insurance company will not consider the depreciation of your vehicle and its parts while calculating your claim settlement amount for repairs or replacement.

While this add-on may add to your premium, the benefits offered by the zero-depreciation cover are completely worth the increased cost.

Learn more about:


Hopefully, these terms will now help you better understand the world of motor insurance, so that you can stop feeling overwhelmed with all the complicated terms or jargons the next time you buy or renew your insurance policy for your vehicle!