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Module 3.6CFP RMISFull chapter

General insurance

In this chapter: Motor — TP, OD, comprehensive · Home, travel, personal accident

~5 min readLayer 4 · Professional CertificationsFree

General (non-life) insurance covers property damage, liability, and specific events. CFPs must understand basic coverage types: motor, home, travel, personal accident. While these are typically smaller in financial impact than life or health, they protect against real catastrophic events.

Foundation

Motor insurance: • Third-Party Liability (TP): mandatory by law. Covers harm to others' property/persons. • Own-Damage (OD): own vehicle damage. Voluntary but recommended. • Comprehensive = TP + OD Home insurance: • Structure: building damage from fire, flood, earthquake • Contents: appliances, furniture, jewellery • Burglary cover Travel insurance: • Medical emergencies abroad (critical) • Trip cancellation, baggage loss, etc. Personal accident insurance: • Lump sum for accidental death/permanent disability • Cheap; supplemental to life/health insurance

Deep Dive

Motor insurance details: New car (high IDV — Insured Declared Value): • Comprehensive: covers OD + TP • Premium: ~3-4% of IDV in year 1 • Includes natural calamities, theft, third-party • Add-ons: zero depreciation, return-to-invoice, engine cover, roadside assistance Older car (5+ years): • OD value low; consider TP-only • Premium drops dramatically • Self-insure low-value damages NCB (No Claim Bonus): 20-50% discount on OD premium for claim-free years. Compounds. Home insurance: • Structure cover: builder cost OR replacement cost (rebuild value) • Contents cover: ~30% of structure typically • Don't under-insure (proportional reduction applies) • Premium: 0.05-0.1% of insured value annually Travel insurance: • Schengen requirement: ₹30L medical, ₹50K personal liability minimum • US/Schengen recommendation: ₹50L medical + cancellation • Annual multi-trip vs single-trip Personal accident: • ₹50L accident death cover at ₹500-1000/year • Particularly valuable for high-mobility professionals

Advanced

When NOT to insure: • Items where loss is recoverable (cheap appliances, jewellery worn rarely) • Where you can self-insure (3-month emergency fund covers minor losses) • Coverage that overlaps with existing (e.g., home insurance vs landlord's policy) Motor insurance optimisation: • New car: comprehensive + zero depreciation + return-to-invoice + roadside assistance • 5+ years old: TP-only + minimal OD; rest self-insure • Multi-vehicle households: combined policies often cheaper Home insurance traps: • Under-insuring (₹50L cover for ₹1.5 cr home): proportional reduction in claim. Use replacement-cost basis, not market value. • Geographical exclusions: earthquake, flood often excluded; verify • Construction-quality riders: brick vs concrete differ Travel insurance: • Pre-existing condition exclusions: international medical claims often denied if PED-related • Trip cancellation: covers documented reasons (illness, death in family); doesn't cover whim • Adventure-sports often excluded; explicit add-on needed Personal accident: • Often combined with credit-card travel benefits — verify before duplicate purchase • Disability defines (Permanent Total vs Temporary; specific definitions matter)

Regulatory references
  • Motor Vehicles Act on TP insurance
  • IRDAI on general insurance products
  • Home and travel insurance standardization
Common mistakes & pitfalls
  • Comprehensive on old car (poor cost-benefit).
  • Home insurance based on outdated cost.
  • Travel insurance only for "important" trips.
  • Forgetting to update PA cover.
  • Not stacking with other insurance policies (PA + life + critical illness for full coverage).

Frequently asked

When should I switch from comprehensive to TP-only car insurance?
When OD value is low (10+ year old car with IDV under ₹2L). Comprehensive premium ~3% of IDV; TP-only is ~₹3-5K. For low-IDV cars, self-insure damages.
Is home insurance mandatory?
No, but strongly recommended. Premium is small (~0.05% of insured value). Covers fire, flood, earthquake (with riders), burglary. Without insurance: any major event creates uncapped exposure.
What's the difference between PA insurance and life insurance?
PA covers accidental death/permanent disability (lump sum). Life insurance covers any cause of death + sometimes disability. PA is supplemental — cheap and worthwhile, especially for travelers.

Practice questions

Click each question to reveal the answer and explanation.

Q 1
Third-party motor insurance is:
  1. (a)Optional in India
  2. (b)Mandatory by law
  3. (c)Only for commercial vehicles
  4. (d)Available for cars under 1L
Correct: (b) Mandatory by law
Third-party motor insurance is mandatory under Motor Vehicles Act. Covers liability to third parties for accidents. Driving without it is illegal.
Q 2
For an 8-year-old car worth ₹3 lakh, the recommended insurance is:
  1. (a)Full comprehensive
  2. (b)Third-party only
  3. (c)No insurance
  4. (d)Premium personal accident
Correct: (b) Third-party only
Old car with low IDV: TP-only sufficient. Comprehensive premium too high relative to potential OD claim. Self-insure damages from emergency fund.
Q 3
Home insurance under-coverage typically results in:
  1. (a)Full claim payment
  2. (b)Pro-rata reduction in claim
  3. (c)Insurer denial
  4. (d)Legal action
Correct: (b) Pro-rata reduction in claim
Pro-rata reduction: if you're 33% covered, claim pays 33%. Use replacement cost (not market value) at policy purchase. Update annually.
Q 4
Annual multi-trip travel insurance is best for:
  1. (a)Single-trip travelers
  2. (b)Frequent international travelers (2+ trips/year)
  3. (c)Domestic-only travelers
  4. (d)Not recommended
Correct: (b) Frequent international travelers (2+ trips/year)
Annual multi-trip works out cheaper than per-trip for 2+ international trips per year. Standard for business travelers and frequent leisure travelers.
Q 5
Personal accident insurance typically costs:
  1. (a)₹10K/year for ₹10L cover
  2. (b)₹500-1000/year for ₹50L cover
  3. (c)₹50K/year for ₹50L cover
  4. (d)More than life insurance
Correct: (b) ₹500-1000/year for ₹50L cover
PA is cheap: ₹500-1000/year for ₹50L cover. Supplemental to life and health insurance. Particularly valuable for high-mobility professionals.
Educational purposes only. The numbers, returns, and examples used in this lesson are illustrative. Past performance does not guarantee future results. Mutual fund and securities investments are subject to market risks. This lesson is not investment advice; for advice tailored to your circumstances, consult a SEBI-registered Investment Adviser. Read our full disclaimer.