Car Insurance Policy - Essay Example

Car insurance An insurance policy is a contract, legally bidding and enforceable by the law that protects the policy holder from financial loss that occur in cases of damage of property, illness, death and court cases. Insurance companies use the principle of pooling resources of many people sharing a common risk together (many people facing a common risk) in exchange of a financial compensation if the impending risks occur to a few policy holders at a given time. Risks covered by insurance companies are broadly classified as pure risks and speculative risk. Pure risk don't result in financial gain by the policy holder while speculative risks on the other hand protects the policy holders such as big business venture from large financial losses (Baldwin 45). Due to the nature and dynamics of the car industry, it is faced with massive risks especially due to accidents which may occur at any time. Statistics indicate that the automobile industries faces the most number of accidents and property loss as compared to other sectors that other insurance policy covers, Laws in almost all countries forbid the driving of automobile without necessary insurance policy cover. Vehicle owners are faced by a big problem when it comes to the choice an insurance policy. Hasty policy buying often lead to wrong choices and huge loses are incurred by the insured person. According to (Malcolm 78), the first and the most important factor is the cost of the insurance cover, most insurance companies offer differing rate for a given policy. Before buying an insurance cover there is need for critical evaluation of the price. This can be done through requesting several companies to send their price quote for each car insurance cover. Cheap insurance premiums can be very deceptive, it is important that the car asks for and reads the whole insurance policy document before settling on the insurance cover policy. There are different insurance packages each covering a different set of individual protection. Some of these include; Third Party Insurance; which is a very cheap cover and protects the insured from third party risks e.g. fire and car theft. Body Injury; which pays up to certain coverage limit, injury and death to the people with the operator of the car at the time of the risk. Defense costs; which are incurred during the law suit are also covered. Property Damage; which pays up to a given coverage limit for the other vehicles involved in an accident in which you are legally responsible for the accident. Medical Expenses; pays for all hospital bill, doctors and funeral expenses to those injured in accidents. Uninsured And Underinsured covers all pain and suffering that are not covered by the medical cover. Collision Coverage ; covers damage for the vehicle up to a given limit, Compressive Cover; full policy that pays for up to a given specified amount for vehicle damage, vehicle loss and damage due to theft, floods, fire, vandalism, hail. It covers for all expenses regardless whose fault it was. It's a general requirement for those with car loans. Rental Reimbursements; pay up to a given specified limit, the charges for rental services when your vehicle is being repaired. Labour and towing (breakdown cover), covers for charges incurred in transporting a damaged vehicle to the garage. Delivery of oil battery and other accessories are covered but their actual costs aren't included (Sternberg 143) the payment method is another vital consideration which is dictated by the amount of money at hand during a given duration (Vaughan 241). Depending on the vehicle owner cash inflows, he can decide to pay insurance premiums yearly or the policy can be paid in monthly installment. Monthly installments are preferred by many but are more expensive as there in a small additional cost charged because of paying over a period (Rogers 133) Another very important factor is where the car owner lives, with the advancement of technology, insurance covers are availed online, it is however important to obtain an insurance cover from a company operating in the home country of the insurance policy holder. This will help in provision of faster and easy access to emergency services like towing and repair in times of the accidents, you may also get to discuss face to face with the company and get help and compensation much faster if the insurance company is located near or in your home country. The policy holder locality may at some time influence the cost of the policy, those living in congested cities where there is prevalence of crime or heavy traffic increase the probability of accidents occurring may have to pay more as insurance premiums as compared to areas with less crime and population (Peter 2) The age of the car is of paramount importance when looking for an insurance cover. This brings about gap insurance coverage. As the car is used it depreciates due to wear and tear, hence if its involved in accident, the compensation amount will be deducted this depreciation amount, to prevent this deduction extra money is charged against the premiums for an old car to cover for this difference called "gap insurance."(Longcore 3) Another consideration before getting an insurance cover is whether the car is being leased or the car was bought through a loan. Car bought with loans must have comprehensive insurance which is expensive, leased car are required to have collision covers such that if it hit an object it can be repaired In addition to comprehensive insurance. Another factor is whether the insurance cover allows you to drive the car abroad, European Union members are not affected by this. However, in other countries, most insurance policies define territorial limits, if a risk occurred outside the defined territory; compensation is not awarded. An example is the transit lorries/trucks that have to be insured in every country that they pass through. Expensive and high level insurance covers offer insurance policies that transverse coutry boundary. The extent to which the insurance cover extends to is important, some insurance cover will pay for theft of a car in which the owner accidentally left the keys in the car and the car doors open while others will claim that the policy holder contributed to the crime and not compensate him/her. Other insurance policies are very flexible that they allow a person to suspend payment of premiums if the policy holder is not using his/her automobile. For others non payment of premium leads to a lapse of the policy which means no compensation if the impending risks occur (Steve 3). Another factor is gender; women drivers in some countries pay less for their policies than their male counterpart. In some policies documents married couples pay less premiums as compared to the single counterparts. In others young drivers pay more in insurance policies because they don't have experience to drive and a liable to cause accidents. In conclusion the key factors that affect the choice of a car insurance cover are the cost of the insurance policy cover, automobile age, the location of the car owner, age, gender, the type of insurance cover. It's of great importance to read and understand a policy before accepting the terms and condition of a given car insurance policy. References Baldwin, Ben. The Complete Book of Insurance: The Consumer's Guide to Insuring Your Life, Health, Property and Income. New York: McGraw-Hill. 1995 Malcolm, Clarke. Policies and Perceptions of Insurance: An Introduction to Insurance Law. England: Clarendon Press. 1997 Rogers, Paul. Insurance in the Soviet Union, New York: Praeger publishers. 1986 Sternberg, Thomas. Efficient Monopolies: The Limits of Competition in the European Property Insurance Market. Oxford: Oxford University Press .2004 Vaughan, Emmett. Essentials of Risk Management and Insurance. 2nd Ed. New York: Wiley. 2001. Internet sources Peter. "Beloved 1970's Datsun Cherry a classic, make sure you take care when choosing your car insurance policy! A car as special as yours deserves a special kind": A Hand book on Classic insurance Information, 10 May 2008, classic insurance information 13 April 2009 from: www.peterbestinsurance.co.uk/Classic-Insurance-Information.pdf Longcore, Russell "Car Insurance - The Top Ten Factors That Affect Your Car Insurance Rates." Car Insurance - The Top Ten Factors That Affect Your Car Insurance Rates. 29 Nov. 2008. EzineArticles.com. 13 Apr 2009 Read More