Understanding the Basic Types of Car Insurance.

Due to the huge costs associated with vehicle insurance, drivers often just opt for the cheapest policy available, often without studying exactly what they are covered for. Getting a suitable insurance policy for your car may not be a priority, but it really should be given the fact that it protects one of your biggest investments; your car.

A good insurance policy can provide complete peace of mind by being financially and legally covered should you be involved in an accident or be a victim of car theft.

Getting the right insurance policy for your car can be a complicated affair and consumers who are not familiar with the various insurance products available are often left bewildered and / or end up paying more for their car insurance.

THE BASICS OF VEHICLE INSURANCE

A car insurance policy is in essence only a formal undertaking by the insurance company that they would accept a certain degree of financial responsibility for any loss the insured or other parties may incur through accident or other damage or theft to a vehicle. The degree of financial responsibility the insurer assumes depends on the type of insurance policy you opted for, hence it is important that you read your policy and the schedule and make sure that you clearly understand the terminology, terms and conditions, and any possible exclusion / inclusion clauses.

When a claim is submitted, the insurer will pay out an amount based on a variety of factors that are determined beforehand as stated in the policy documentation. The main factors are: Make, Model, Age and condition of the insured vehicle.

A damaged car is quoted to be repaired and if found that repair costs exceed about 70% of the car's value, the vehicle will generally be written-off. Insurers will typically pay the policy holder the vehicle's 'market' or 'retail' value, depending on the terms of your policy. Market value is the average of the retail and the trade value and will usually not be enough to replace your car with a new one. Make sure your policy states that the vehicle is insured for 'Retail value'.

WHO NEEDS CAR INSURANCE?

Every car owner/driver need car insurance. Vehicle insurance protects you legally and financially when you cause property damage to your own or other cars as well as bodily injury or death to someone else when driving your car. Knowing how important it is to get the right insurance policy for your new or used car, you need to understand the various types of auto insurance before you decide on which company you will choose for your insurance policy. There are many insurance companies out there and it can be overwhelming to decide which one to go for.

Here are some tips to help you research your car insurance company:
• Make a list of the providers you are interested in contacting for quotes. Get at least three detailed insurance quotes and make sure you are comparing apples with apples
• If you decide to go for the cheapest one, make sure everything you require is covered and that there are no hidden costs such as a huge 'excess payment' amount.
• Ask around and study the insurer's reputation for service, price and claim settlement turnaround times.

TYPES OF VEHICLE INSURANCE

There are basically two main types of car insurance policies available in the market and others which are basically variations of the two main types. The first one, commonly known as 'third party' insurance, covers the policy holder against third party liabilities and claims but does not cover your own damages. The second insurance type is known as the 'comprehensive' car insurance cover which covers 3rd-party damages and injuries, theft of your vehicle or fire, as well as any damage to your own vehicle. Vehicle owner needs to be aware of the variety of vehicle cover options as described below:

COMPREHENSIVE INSURANCE

This type of insurance covers injury to other people or damage to their vehicle / property in an accident as well as your own vehicle for accidental or other damages, theft and hijack, and some 'acts of god' that might be separately specified. Acts of god could include: natural fire, explosion, earthquake, flood, typhoon, hurricane, storm, tempest, inundation, cyclone and hailstorm, inland waterway, and others. Usually riots and strikes, malicious acts or terrorist acts is not covered, but check your policy specifications. Because of the extent of the cover, Comprehensive is the most expensive type of car insurance.

PAY-AS-YOU-DRIVE (COMPREHENSIVE, BUT LIMITED)

If you don't spend much time on the road but want to enjoy all the benefits of comprehensive insurance, some insurers offers Pay-As-You-Drive insurance that are worked out by charging you proportionately for the amount of time you spend on the road.

BALANCE OF THIRD PARTY, FIRE AND THEFT

Covers you for damage to the other party's vehicle in the event of an accident, and for your vehicle in the event of loss by theft, or fire only. Damages to your own car in the event of an accident will not be covered.

THIRD PARTY ONLY

Third party only is the most limited form of cover and is also the cheapest of the options. It covers you for damage to another party's vehicle in the event of an accident and will cover the costs associated with the accidental death or injury of third parties involved in the same accident. Your own car is not covered in any way.

Maintaining your insurance policy is an on-going process. Cars lose value over time and the insured value of your vehicle needs to be monitored and updated from year to year. If your premiums are based on your original purchase price, but the car's current value is less, only the discounted value will be paid out by the insurer. Make sure your car is not insured for more than its current market or retail value. Contact your insurer and consult with them on whether your premium might be adjusted.

Finally, your insurance policy is in place and you can rest assured. Continue to drive safely and take caution where you park your car and you might not even need it, but it is always better to be safe than sorry!