CAR INSURANCE - Beginners guide to car insurance
In a nutshell, insurance policies involve the transfer of risk. The insurer agrees to compensate you for a loss rather than you having to pay for that loss yourself. Usually the insurer assesses whether to accept the risk (and if so, on what terms) through information they get from you. You decide whether the terms the insurer offers meet your needs.
One type of insurance is compulsory: when you register your car, you have to pay for third party personal insurance (sometimes called a "green slip"). This covers injuries to other people if the car is involved in an accident. Remember that third party personal insurance does not cover any injuries you may incur yourself, or damage to your vehicle or someone else's.
In addition to the green slip there are three common types of optional car insurance policies:
1. Comprehensive insurance
If the driver of your car is covered under the policy, this policy covers damage to your own car and damage to other people's property (usually their car) in an accident.
2. Third party fire and theft insurance
This policy covers damage caused by your car to other people's property, and limited cover for loss or damage to your car caused by theft or fire only.
3. Third party property insurance
This policy only covers damage caused by your car to other people's property. It does not cover the cost of repairs to your own car.
There are many things to look out for when buying insurance to make sure you get the best deal for you and that you'll be covered in case you have to make a claim.
Choosing a car insurance policy
Most people only read their policy from cover to cover when they need to make a claim.Unfortunately, by this time it's often too late. In the great majority of cases involving disputes, consumers did not have the insurance cover they thought they did. Avoid an unpleasant "accidental" discovery by making sure you know up front what your policy will and won't cover.
Don't skimp on the right kind of car insurance cover or you may pay dearly down the track. While it may be tempting to opt for the cheaper third party property insurance, this will only cover the other person's property and not your car. You don't want to end up with a smashed car and no insurance to cover it, particularly when you are still committed to paying it off. Comprehensive insurance should be investigated because, after all, a car is one of the largest investments you will make.
What won't the policy cover?
Generally, policies are similar in the way they describe the events covered by the policy. The differences are in what the policy doesn't cover.Most policies do not cover loss or damage resulting from:
- mechanical, structural or electrical failure
- depreciation, wear and tear, and rust
- the cost of repairing faulty or burst tyres (although other damage from any resulting accident will be covered)
- lost wages or income because you cannot use your car
- unauthorised modifications to the car from the maker's specifications.
Comprehensive insurance is meant to cover the cost of repairs from motor vehicle accidents, fire or theft - not to replace parts that stop working because of age or some inherent fault. Read the policy carefully to make sure your expectations of the cover match what the policy says.
Agreed value or market value?
Your car will either be insured for an agreed value (stated in the policy) or for the market value of that make and model of car, based on the going rate for that type of car and the condition of your particular car.How does the driver of the car affect the policy?
The person who is driving the car can affect:
- the premium you pay for car insurance, and
- whether the insurer will pay for damage if there's an accident
Your policy will not cover loss or damage if the person driving the car was:
- over the limit or under the influence of drugs
- unlicensed
- not authorized under the policy to drive the car
Understandably, most companies assume they are insuring an ordinary motorist rather than a Formula One race car driver. If you are planning any "unusual" activities involving your car, be aware that policies will not cover damage if you:
- are driving in a race or competition
- intentionally damage your own car.