Return to Invoice cover under Motor Insurance.

Usually there are two types of motor insurance that all of us are familiar with- Liability only Covers (third party cover) and Comprehensive cover. Third Party Liability only insurance covers the cost of liability towards a third party, that may occur while we use our motor vehicle. This is compulsory in nature. On the other hand Comprehensive Insurance covers the cost of own damages that may occur to the vehicle during the course of usage.  And we are aware of the advantages of having a comprehensive cover in spite of the high premium that we have to pay.

However, there is a less known feature cover that you can opt for your motor vehicle. Return to Invoice is a relatively new concept in motor insurance. Conventional comprehensive insurance do not cover all events and aspects of damage. Under comprehensive insurance depreciation is applied on the cost of the vehicle and an agreed Insured Declared Value (IDV) is taken as the value of the vehicle for the purpose of insurance. The standard insurance policy pays for the damages to a car after taking into account the depreciation in value or in other words only up to the IDV. If the car is four-to-seven years old, the insurer will only pay a part of the vehicle’s original value, because of depreciation. Depreciation is usually calculated at the rate of 10% of the invoice cost every year.

Return-to-invoice plans cover the gap between the insured value of the car and its invoice value - value of the car when it was newly bought. This is important in cases of Total Loss, in which case under comprehensive policy, the maximum amount payable by the insurance company is limited by the IDV. Total Loss refers to total damage to the vehicle and repairs would be more expensive than replacing the vehicle. In such Total Loss cases, this Return to Invoice policy will pay the entire amount that was paid originally by the policyholder at the time of purchasing the vehicle.

Return to invoice policy is most advisable for owners of vehicles that are more than 3 years old, as Nil Depreciation policies are given for new vehicles till the 3^rd renewal. Nil depreciation policies does not calculate depreciation at the time of claim on the cost of fibre glass components, rubber parts etc by charging extra premium.

The approximate difference in the premium between Comprehensive Policy and Return to Invoice policies would be 30-40% more for the latter. The return to invoice premium will depend on the make and model and usage patterns.

So the next time you go to renew your motor policy, enquire with your insurer whether he has the option of Return to Invoice Policy and take a moment to decide whether you should opt for it.