You must be aware that when you buy a car, its value starts depreciating as soon as you take it out of the showroom. The percentage of this depreciation may seem small at the beginning, but it increases each subsequent year.
This is a crucial aspect when it comes to the insurance of your car. The insurer will cover your vehicle according to its IDV (Insured Declared Value), i.e., the current market value of the car. So, even if your car is stolen or damaged beyond repair, you will be compensated with the depreciated amount and not the price you bought it for originally.
For instance, Aman bought a brand new Honda City for Rs 14 lakhs. The value of the car began depreciating the moment he took it out of the showroom. The car was stolen within the first year of the purchase. Let’s assume it gets depreciated by 15% within the first year.
So, the depreciation amount = 15% of 14 lakhs = Rs.2,10,000
The compensation he is eligible to get from the insurer
=Rs.14,00,000 - Rs.2,10,000
So Aman will receive Rs. 11,90,000 from the insurer. And, if Aman plans on buying a new car of the same model, you will have to bear the price difference!
However, there is a workaround for this unfortunate situation. Car insurance plans can be customised with an add-on called Return to Invoice Cover.
So, what is a Return to Invoice Cover? What are its benefits? How do you calculate it?
Let’s have a look!
What is Return to Invoice Cover?
A Return to Invoice (RTI) cover is essentially an add-on that allows you to get the invoice amount of the car, i.e., its original amount in case of any total loss, constructive total loss, or theft of the car - without factoring in the depreciation. Here are some features of the RTI Cover-
It is an add-on available with comprehensive insurance plans , and you are required to pay an additional premium if you want to add it to your policy.
It can be purchased by new car owners. It is available for vehicles that are less than 3-5 years old.
How does Return to Invoice Cover Work?
The Return to Invoice cover gets triggered when your vehicle meets with an accident and the damages are beyond repair, or if your vehicle is stolen. In such scenarios, you can claim under the cover.
For example, if your vehicle is stolen and you have an RTI cover added to your policy, you can raise a claim and get the invoice value of your vehicle.
Note: You will be eligible to claim the invoice amount only if you have the Return to Invoice cover added to the policy. If you don’t and in case of total loss or theft of your vehicle, you only get the Insured Declared Value of the vehicle.
Why Should You Buy a Return to Invoice Cover?
If you own a comprehensive insurance plan, and your car gets stolen or damaged beyond repair, the insurer will compensate you with the IDV. An RTI Cover helps you negate this by cancelling out the depreciation, thereby making you eligible to receive the invoice amount for the car.
You should consider adding a Return to Invoice Cover in your insurance plan if-
- You live in an area which is prone to thefts or you feel insecure.
- You own a luxury vehicle that is priced on the higher side.
- You live in a hilly area, or an area where floods or accidents occur often.
Return to Invoice Cover Calculation
When you buy a new car, you pay the ‘on-road price’ of the vehicle. This also includes the showroom price of the vehicle, along with registration charges, insurance charges, and road tax charges.
Let’s see what happens if you own a comprehensive insurance plan without an RTI cover and with an RTI cover.
Comprehensive Insurance Plan With RTI Cover
If your vehicle is damaged beyond repair or stolen, the compensation will be equal to the original value of the car, which depends on the following two values-
Vehicle Price= Ex-Showroom Price + Road Tax + Registration Charges (at the time of the original purchase).
Current Replacement Price of the vehicle= Ex-Showroom Price + Road Tax + the Registration Charges (in case the same model is available).
Let’s take Aman’s example again. If he had added the RTI Cover to his car insurance policy, he would be eligible to receive the invoice value of the car as the compensation from the insurer. This means that he would receive Rs 14 lakhs as the compensation.
Are There any Exclusions to the Return to Invoice Cover?
The RTI Cover will not be applicable in the following cases-
Third Party Liability
In case your vehicle causes any sort of damage to a third person or their property, you cannot claim under the RTI Cover as it covers only own damages.
As mentioned before, the RTI Cover can be purchased for vehicles that are less than 3-5 years old. You will not be given the RTI add-on option after a certain number of policy renewals.
Non-Filing Of FIR
If your vehicle has been stolen and damaged, it is necessary to file an FIR at the nearest police station and also submit a copy of the FIR to the insurer. Not complying with these steps will make you ineligible to make a claim under the RTI Cover.
If your vehicle has sustained minor damages and can be repaired, you cannot claim under the RTI Cover.
Important Points to Note About Return to Invoice Cover
Here are a few things you should keep in mind about the RTI cover -
It is available only for those vehicles less than 3 years old. You won’t be able to add it to vehicles more than 3-5 years old.
You won’t be able to make a claim under the cover for minor damages or repairs.
It is an additional cover, which means you will have to make an extra payment to get it added to your policy.
So, we hope this article helped you understand what a Return to Invoice Cover is. This add-on is especially beneficial if you own an expensive car or live in a locality that is relatively unsafe - so you are protected from any heavy financial losses and stress.
Frequently Asked Questions
1. Can I add a Return to Invoice cover if my vehicle is more than 5 years old?
No, the cover is applicable for only those vehicles less than 3 years old.
2. Are Return to Invoice and Zero Depreciation the same?
No, a Return to Invoice cover helps you in getting back your invoice value in case of total loss or theft of your vehicle, whereas a Zero Depreciation cover waives the depreciation that may happen to your vehicle parts at the time of claim.
3. Is Return to Invoice better than Zero Depreciation?
Both Return to invoice and Zero Depreciation serve different purposes, and hence, both covers are equally beneficial.
- The Return to Invoice can be added to policies for vehicles less than 3 years old.
- The Zero Depreciation cover can be purchased for vehicles that are 1 to 5 years old.
4. Can I claim under the Return to Invoice cover for minor damages?
You can claim under the cover only in case of theft or total loss. You cannot claim any minor damages under the Return to Invoice cover.
5. If I purchase only a third-party cover for my new car, can I add the Return to Invoice policy to it?
No, a third-party cover does not cover your vehicle, and hence, add-ons such as the Return to Invoice cover cannot be purchased with it.