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Auto Insurance 101

Date: Jul 23 2009
Filed In: Auto Insurance101

Auto insurance is a plan meant to provide some relief to the insured individual in case of an accident with the insured vehicles. The basic principle of this concept is that the insured vehicle agrees to pay a certain predetermined amount as the premium over a fixed period of time, in exchange of which the insurance company covers the loss incurred to the individual’s car and related property in case of a mishap.

Car insurance provides great financial stability as it pays for a large fraction of the cost of repair and maintenance of the car, as well as the medical costs if incurred due to injuries sustained by the insured parties. However, auto insurance is in technical terms known by a variety of other names, specifically auto insurance and motor insurance. While addressing a broader category of transportation, the term vehicular insurance is also frequently used.

Today, more and more car buyers are opting for auto insurance, even though cars are becoming more risk-free with safer technologies and stringent laws. However, the most important factor which determines the cost of auto insurance is the quality and time of purchase, as newer and more expensive cars tend to be a greater burden on insurance companies in case of an accident.

There are quite a few types of car insurance policies accessible in the market. For example, in case of vandalism or damage to the car due to natural disasters, the comprehensive insurance policy is applicable. Uninsured or under insured policy allows you to claim damages in case of an accident even if the driver does not have an adequate policy cover. Medical insurance covers the expenses in case of physical damage during an accident. Collision insurance bears the burden to make up for the fall in the market value of a car in case of an accident. The most important scheme, liability insurance, provides relief to both persons and property in case of damage during an accident.

Rates of insurance are highly dependent on the insurance laws prevalent in a country. For example, some countries make it compulsory for every driver to have third party insurance. So, if the insurance laws are changed by the government, the rates might go up or down.

Although laws play a major role, the rates are mostly decided by the insurance company. This is done by creating a risk rating of all those availing the policy, and deciding the respective rates accordingly.

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