What Is Car Insurance? Everything About Car Insurance In 2019

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What Is Car Insurance?

Car Insurance is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury resulting from traffic collisions and against liability that could also arise from incidents in a vehicle.

Car Insurance may additionally offer financial protection against theft of the vehicle, and against damage to the vehicle sustained from events other than traffic collisions, such as keying, weather or natural disasters, and damage sustained by colliding with stationary objects. The specific terms of vehicle insurance vary with legal regulations in each region.

History Behind Car Insurance

Widespread use of the motor car began after the First World War in urban areas. Cars were relatively fast and dangerous by that stage, yet there was still no compulsory form of car insurance anywhere in the world. This meant that injured victims would seldom get any compensation in an accident, and drivers often faced considerable costs for damage to their car and property.

A compulsory car insurance scheme was first introduced in the United Kingdom with the Road Traffic Act 1930. This ensured that all vehicle owners and drivers had to be insured for their liability for injury or death to third parties whilst their vehicle was being used on a public road. Germany enacted similar legislation in 1939 called the “Act on the Implementation of Compulsory Insurance for Motor Vehicle Owners.”

In many jurisdictions, it is compulsory to have vehicle insurance before using or keeping a motor vehicle on public roads. Most jurisdictions relate the insurance to both the car and the driver; however, the degree of each varies greatly.

Several jurisdictions have experimented with a “pay-as-you-drive” insurance plan which utilizes either a tracking device in the vehicle or vehicle diagnostics. This would address issues of uninsured motorists by providing additional options and also charge based on the miles (kilometers) driven, which could theoretically increase the efficiency of the insurance, through a streamlined collection.

Car Insurance Types

 

1. Liability Car Insurance (Third Party Insurance)

Liability insurance covers you in the event you are in a covered car accident and it is determined the accident is a result of your actions. Liability insurance will cover the cost of repairing any property damaged by an accident as well as the medical bills from resulting injuries. Most states have a minimum requirement for the amount of liability insurance coverage that drivers must have. If you can afford it, however, it is usually a good idea to have liability insurance that is above your state’s minimum liability coverage requirement, as it will provide extra protection in the event you are found at fault for an accident, as you are responsible for any claims that exceed your coverage’s upper limit. You wouldn’t want to run the risk of having to pay a large amount of money because your policy limit has been exceeded.

2. Collision Car Insurance

If there is a covered accident, collision coverage will pay for the repairs to your car. If your car is totaled (where the cost to repair it exceeds the value of the vehicle) in an accident, collision coverage will pay the value of your car. .

If your car is older, it may not be worth carrying collision coverage on it, depending on the value. On the other hand, if you have a more expensive car or one that is relatively new, collision insurance can help get you back to where you were before any damage to your car. Note: If you have a lienholder, this coverage is required.

3. Comprehensive Car Insurance

What if something happens to your car that is unrelated to a covered accident – weather damage, you hit a deer, your car is stolen – will your insurance company cover the loss? Liability insurance and collision coverage cover accidents, but not these situations. These situations are covered by Comprehensive (other than Collision) coverage.

Comprehensive coverage is one of those things that is great to have if it fits in your budget. Anti-theft and tracking devices on cars can make this coverage slightly more affordable, but carrying this type of insurance can be costly, and may not be necessary, especially if your car is easily replaceable. Note: If you have a lienholder, this coverage is required.

4. Personal Injury Protection

While Comprehensive coverage may be something you don’t need to purchase, Personal Injury Protection (PIP) is something you should. The costs associated from an accident can quickly add up, and in order to cover those costs Personal Injury Protection is available. With this coverage, your medical bills along with those of your passengers will be paid, no matter who is at fault for an accident. Note: This coverage is not available in all states.

5. Uninsured /Underinsured Motorist Protection

While state laws mandate that all drivers should be insured, this is unfortunately not always the case. Another issue that can arise is that while a driver may have liability insurance, many states have relatively low minimum coverage requirements that may not be enough to cover all of the expenses of an accident. So, if someone is legally responsible for damages related to an accident, you won’t receive any payment if they do not have coverage or you will receive less than you need to cover the cost of damages if your damages exceed their coverage amount. This is the type of situation where Uninsured and Underinsured Motorist Protection would help with expenses.

Which one is the best Car Insurance?

Among the 5 types of car insurances mentioned above, there is Liability Car Insurance (Third Party Insurance) and Comprehensive Car Insurance is the best ones to select.

What Does Comprehensive Insurance Cover?

In order to avoid any last minute surprises, it is always better to have a complete grasp on the inclusions and exclusions mentioned in your vehicle insurance policy. For that, you must read it very carefully. Generally, you won’t need to worry about the following, as they will be covered under your comprehensive car insurance:
  • Damage caused by Natural disasters or severe weather
  • Fire
  • Theft
  • Vandalism
  • Damage to third party
  • Damage to your vehicle caused by falling objects such as trees
  • Damage or destruction of your vehicle caused by an act of civil disturbance such as riots

What Does Comprehensive Insurance Not Cover?

If your vehicle endures damage due to a collision, then a car insurance claim cannot be made unless you have comprehensive car insurance. Similarly, there a bunch of things that have been excluded from comprehensive car insurance:
  • Depreciation
  • Wear and tear of the vehicle
  • Electrical or Mechanical breakdown
  • Damage caused to the vehicle by a person driving without a valid license
  • Damage caused due to drunken driving
  • Damage caused due to driving under the influence of drugs
  • Damage to tires and tubes. However, if the vehicle is damaged at the same time, the liability of the company will be limited to 50% of the replacement cost
  • Loss/damage to the car caused by war, mutiny or nuclear risk

What Does Third Party Car Insurance Cover?

  • Damages to a third party vehicle
  • Damage caused to a third party property
  • Injuries caused to other people in an accident

What Does Third Party Car Insurance Not Cover?

  • Cost of damages to a vehicle or the belongings in the vehicle in case of an accident
  • Cover for losses incurred if your car or belongings are stolen or destroyed
  • Coverage against damages to your own vehicle
  • Cover for injuries you suffer in an accident
  • Pay-out for a replacement if your car is written off

Conclusion

Car owners should be wise enough to choose the best car insurance coverage options to minimize the risk and to maximize the benefits. While mandatory liability insurance is the cheapest option, it will not cover the policyholder’s interests. Hence, the selection of insurance policy should be done as per the make and model of the car, frequency of usage, location, and other factors. By comparing and analyzing various kinds of coverage, you can settle for the best car insurance policy.

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