IInsurance is as popular as banking, but otherwise life would be difficult. Without insurance, we would have no choice but to pay the entire cost of a catastrophic event (house fire, car theft) ourselves. That’s fine when we’re really rich, poor, or lucky, but not so good the rest of the time.
First published in the April 2008 issue of street machine
Instead, insurance allows us to share the risk of something bad happening with other people, each paying a premium into a much larger pool of money from which the poor guys who suffer a big loss are compensated.
The premiums are based on the expected expenses from the cash register – how many cars are likely to be stolen in total – and the individual risk: how much more likely it is that your car will be stolen compared to, for example, your mother’s Corolla. The value of your car can also play a role.
Complaints about insurance companies usually focus on the exorbitant cost of premiums or the gap between actual and expected payouts when something goes wrong.
Insurance companies aren’t charities, but if they get greedy and overcharge their premiums, their customers will go elsewhere like any other company. Well, that’s the theory and it’s also the practice when we shop around and compare prices, which these days is as simple as typing “car insurance quotes” into Google.
Insurance companies are increasingly specializing in market segments and some may not particularly want your business, in which case they offer an uncompetitive premium. This is especially true for younger drivers and older cars, which is why specialty insurers like Shannons (converted cars and classics), Piranha (race cars) and Just Car (teens) were made for people like us.
If the premiums are too low, the insurance company will do a lot of business, but eventually go broke if the claims exceed the premium income. This happened with HIH insurance and caused enormous difficulties for many people whose legitimate claims could no longer be met.
Without TPPD (Third Party Property Damage), even a little hoax with an expensive car could land you in the poorhouse
When setting individual premiums, insurers assess risk by examining past claims. The key determinants that insurance companies have found useful in predicting future claims are the make and model of the vehicle; his age; business or personal use; locality; driver’s age and record; car financing; modifications; and previous insurance history. Job, anti-theft device and kilometers driven can also be relevant.
Loyalty and a good claims record are rewarded by insurers with no-claims discounts that can reduce your premium by up to 65 percent. A discount of 20 percent is typically granted on fully comprehensive insurance after one year, and 10 percent per year thereafter. In many cases, these no-claims discounts are transferrable, and additional discounts can be granted with multi-car special insurers.
Premiums are also affected by how much “excess” you are willing to pay: with a standard policy, you may have to pay for the first $1000 of damage, which you can reduce by paying a higher premium. Vehicles with a notorious high level of theft typically have very high deductibles, as do young drivers.
Most disputes arise when expected payments are not made or claims are dismissed outright; The devil is often in the details, so it always pays to read the fine print. In 60 percent of complaints people think they are covered for a certain event and find they are not – liability insurance is a classic example – so let’s take a look at the broad types of car insurance on offer, and what they cover.
car insurance documents
Mandatory Third Party
This insurance (sometimes referred to as a green ticket) protects you against claims for injury or death that your car could cause to someone else, assuming you or another driver of your car was at fault.
It is mandatory in that you will not register your car without it. It’s bundled with vehicle registration fees in some states, but you can usually shop around for the best price. The premiums do not depend on the value of the car, but rather on the age of the driver and the car and whether the car is covered by any other insurance.
What CTP doesn’t cover you for is damage you may cause to someone else’s car or property, nor does it cover injury to you or your own car.
property damage of third parties
TPPD insurance protects you against claims for damage your car may cause to someone else’s car or property. If you collide with another car (or house or traffic pole) and you are at fault, then you are liable for the damage caused.
Without TPPD, even a little prank could send you to the poorhouse with an expensive car. We strongly recommend young drivers take out at least TPPD, with the added benefit that a good TPPD record could net you a handy no-claims bonus if you later upgrade to Collision Damage Waiver (check with your insurer).
What TPPD does not cover is damage to your own car, even if the other driver is at fault. Some companies offer a limited exception to this if the driver of the at-fault car is uninsured.
Third Party Property, Fire & Theft
This offers the protection of TPPD coverage (above), but also covers you should your car be stolen or written off following a fire. It’s not offered by all insurance companies, but it’s often inexpensive for younger drivers who have invested some money in their car but can’t afford comprehensive insurance.
Comprehensive, as the name suggests, covers you for damage to your own car as well as damage you may cause to someone else’s car or property. It also covers fire and theft, but not personal injury or death.
It’s the most expensive form of car insurance and can be very expensive for people with less than five years of driving experience, but if you have financing for your car, the lender will most likely still require you to have it.
This is where you’ll find the biggest differences in rewards, so it’s most important to shop around. Policy details can also vary in terms of things like tow truck coverage, accommodation far from home in the event of an accident, courtesy car and choice of workshop.
Agreed vs. Market Value
If you insure your car comprehensively, it will either be at market value or at agreed value. The former is more common: when your car is written off, you’re paid the current average market value for that make and model.
This can sometimes come as a nasty shock as some cars depreciate in value very quickly. Ditto if you own a particularly good example of an older car, as the insurer will just lump it in with all the rusty dunkers. In this case, it is better to insure it at an agreed value with a specialist insurer; They will ask for photos and lots of other information and then negotiate with you for an agreed value.
It may not match what you spent, but it will be higher than market value. Impairment policies often also include a provision allowing you to keep the wreck in the event of a total loss.
Restricted Use/Covered Up
Specialty insurers recognize that some cars travel very few road miles: off-street drag cars, vintage cars, show cars, hot rods, even thirsty family cruisers. If you rarely use your car, premiums can be drastically reduced.
The same insurers can also insure your unfinished project to protect you from a shed fire or theft during construction.
If you don’t disclose relevant information when you take out the policy, the insurer may not pay your claim, so there’s no point in fumbling or fibbing. It is also important that you tell the insurer if the car has been modified after the insurance was taken out and that you tell the whole truth when reporting the claim; If you don’t do this, not only could your application be denied, but you could also be charged with fraud.
The insurer also won’t pay you if you or another driver of your car was driving under the influence of alcohol or drugs.