Car insurance is a way of making compensation available to a person who has suffered a loss or other misfortune as a result of a motor vehicle accident. In terms of payment, this compensation is provided from a pool of funds that is made up of the premiums of other policy holders. In other words, the losses of the few are met by the contributions of the many.
you can choose to see the company with which you are (or plan to be) insured as a necessary evil, or you can regard it as a partner able (and obliged) to help you should you ever be unfortunate enough to be involved in an accident. Knowing and understanding your “partner” and learning the ins and outs of the relationship you have with them is clearly the first necessary step towards making the most of (and getting the best out of) your agreed contract. Seeing things from your perspective, knowing your legal rights and responsibilities as a customer, and seeing things from the company’s perspective, understanding their legal rights and responsibilities as insurers, will help you deal more effectively with any issue that may arise.
How does car insurance operate?
All insurance companies are professional risk takers. Car insurance companies calculate the cost of insurance so that they have a large enough pool of money from which to pay out any claims made against them, while still making enough money to prosper as a business. Various factors determine the reasons for big differences in premiums. For example, an older driver will not pay as much as a younger driver, an experienced driver as much as an inexperienced driver, a young driver with a clean record as much as a young driver with an accident record or that same young driver with an accident record who also happens to be driving a car with a high-powered engine. In other words, the higher the risk of a loss to the insurer or an accident to you, the driver, the higher will be the cost of insuring the car. It is in these areas where insurers make shrewd business calculations using their expertise and experience to determine margins and probabilities, always charging more that what might be needed so that, whatever their liabilities, there will always be the likelihood of a profit.
Indemnity insurance
Indemnity insurance means that the insurance cover will pay the amount necessary to put you back in the same financial position as you were before the claim was made. This is a technical term insurance companies use to mean that they will recover your damage. You may hear or read in the policy statements expressions like “we will indemnify you for the following damages”. Indemnity insurance begins to operate from the precise time identified in the policy to which you have agreed and for which you have paid the necessary premium.
The premium you pay for indemnity insurance is determined by:
• the probability of a loss depending on the attributes of the drivers, the car, and the risk address (more on risk address later in insurance factors)
• the cost accrued in the event of a loss (e.g. repair, legal costs, temporary arrangements such as courtesy car etc.). The law requires the insurer to provide the insured with a certificate of car insurance that specifies the nature of the cover provided.
The customer’s perspective
There are two broad categories into which most drivers fall. We can describe them as the Bargain Hunters and the Peace of Mind Seekers. For example, you might be the sort of driver who simply wants to get your car on the road as cheaply as possible. You are interested only in complying with the necessary legal requirements. You take the view that your car is of such little value that in the event of an accident it will not be worth repairing. You have no need or intention, therefore, to make any claim for damages. Your attitude is that if an accident occurs you will simply scrap the car and buy another one. You definitely want only the cheapest car insurance available.
You are happy to class yourself as one of the nation’s many car driving Bargain Hunters. Or, you could be a person who loves driving your own car. Your car is special to you. If something happens to the car, you want to get it restored as far as possible to its original condition. The ability to get back on the road as quickly and as reliably as possible is vitally important to you. You could also be a person who gives more priority to hassle-free experience, who wants all insurance affairs taken care of without trouble or wastage of time. You are happy to class yourself as one of the nation’s many Peace of Mind Seekers.
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