Car Insurance Explained
Car Insurance Explained
Brian Bridges (Underwriter - Norwich Union) gives expert video advice on: Why do I need car insurance?; What do I need before I can insure my car?; How can I ensure that I get the best car insurance quote? and more...
Why do I need car insurance?
You need car insurance because it is the only insurance which is a legal, mandatory requirement. That means, to drive on the road, you must have liability insurance, so that if you hit another car or injure somebody, your car insurance company will pay for their damages. On top of that, it's wise to have car insurance so that you can protect your financial investment in the vehicle itself.
Where do I get it?
If you want to buy car insurance, there are numerous ways you can do so. But probably the two most common are to buy car insurance from an insurance broker or indeed you can contact an insurance company direct. And most people will find adverts on the television for car insurance, or in Yellow Pages. Or indeed you may find adverts for car insurance on the internet as well. And you would contact your car insurance broker or your car insurance company or go through the internet and they can give you a quote for car insurance.
What insurance risks are associated with driving?
The insurance risks associated with driving are, first and foremost, the risk that is involved when you hit another vehicle, somebody else's property or, indeed somebody - a pedestrian. If you are at fault, it means there is a liability risk. That person's injury or property has to be paid for. That is the prime insurance risk that insurance companies are covering. Secondly, and just as importantly, the insurance risk is the vehicle itself - i.e. the cost of the vehicle and the cost of repairing the vehicle also be covered by car insurance.
What do I need before I can insure my car?
When it comes to car insurance you'll need all the details of the vehicle before you can insure your car. You will also need to have all the details about your own driving history, and of course the money to pay for the premium. All you need to do is to talk to your insurance broker or to your direct insurer, request the quote, the type of vehicle that you wish to insure and all the details of that vehicle. From there, that insurance company or broker, will ask you the relevant questions, and will then quote you a premium for the car insurance. Once you have done that, and you decide to accept the premium, then that insurance company will be able to take your money, in many forms, and issue you with the necessary documentation to allow you to be insured on your car and drive on the road.
Where does my money for car insurance go?
The vast majority of that money for every pound that you pay will go to pay for insurance claims. You can safely assume, that in all probability, at least 70% of that premium will be paid towards insurance claims. After that, the resulting 25-30% will go towards paying the operating expenses of that company. The insurance company will also have to pay an amount of money into various funds to protect people against uninsured drivers, to protect people against an insurance company's going bankrupt. Then finally from there, there will be an amount of money left to pay the shareholders of that insurance company. Interestingly in most cases, an insurance company will end up paying more overall than the premium that they've collected. But because an insurance company has to put money aside for reserves, there will be an amount of interest allowed on that money to go towards a profit for the shareholder.
What do insurance companies consider before offering you a quote?
What car insurance companies consider before offering a quote is a very varied question, but insurance companies will have a question set that they will always ask everybody that contacts them. That question set will decide on their acceptance of the risk and their premium. The questions will be around such fundamental issues such as: your age, where you live, the car you're going to drive, any claims you have, any convictions you have, etc. All insurance companies will ask the fundamentally same questions. From there, those answers will allow them to decide whether they want to quote the risk, and if they do, what insurance premium they require.
What documents will my car insurers issue me with?
You'll be issued with a policy booklet. This is the contract between you and the insurance company, and what goes into great detail about the policy benefits, the terms, and the conditions, and any exceptions, and you should read this in some detail. You'll also be issued with a certificate of insurance. This is a legal document that allows you to drive on the road, and gives, for instance a policeman, details about the vehicle that's insured, who's allowed to insure it, and what they're allowed to drive. You'll also be given a document which describes your policy summary, which in really is a very short policy but summarizes the cover that you have. You'll also get a policy schedule, which will give you any changes to the policy, such as maybe a policy excess that you have to pay.
What is a 'certificate of insurance'?
In regards to car insurance, a certificate of insurance is a document required by law under the Road Traffic Act. This allows you to drive on the road as the car has now been insured. It really is as simple as that.
What is a 'cover note'?
In car insurance, a cover note is a temporary certificate of insurance. It applies when you've bought car insurance yet the certificate cannot be issued at that immediate time because time is needed for the insurance company to assimilate the data, issue the documents and allow the certificate to be posted to you. Then in this case, a cover note is issued by an insurance broker that allows you to drive on the road straightaway.
What is a 'policy document'?
In terms of car insurance, a policy document is the contract between you and the insurance company from where you purchased the car insurance. This document will give you full in-depth details about the contract that you have purchased. It will give details of the policy benefits, policy conditions and policy exceptions. The policy document will even give details on how to cancel a policy, how to complain if you are dissatisfied and whom to complain to. A policy document encompasses in great detail exactly what you have purchased and although it may look a little daunting, you should take some time to read it and understand the insurance cover you have got, over and above the minimum required liability cover.
What situations can invalidate your policy?
The situations would occur when you have misrepresented or maybe told an untruth to the insurance company to gain a cheaper insurance premium. In such a circumstance, it may well be that in the event of a claim, the insurance company would decide that you're not covered. It is absolutely vital that when you talk to your insurance company or insurance broker to get a quote that you give them full and correct information even if you yourself are not sure that it's required to be given. In that case there will never be a situation where you will not be covered by your insurer. It is as simple as that, really, always give full and correct information and then you'll always be covered by your insurance company.
Do car insurance companies make a large profit?
I suppose it depends on which car insurance company you are asking the question of really, but in most years car insurance companies do not make what is known as an "underwriting profit". An underwriting profit is when a car insurance company takes £1 of premium and pays out less than that for claims on car insurance and expenses and business acquisition costs. However, what tends to happen is that car insurance companies have to reserve premium so that they can pay claims that they don't know about at the moment. This is called "incurred but not reported". This allows the car insurance companies to put money away, for sometimes many years, to meet possible claims on car insurance that we don't know have happened yet. This money will earn a degree of interest, and this therefore allows car insurance companies to make sometimes a small profit over and above the premium that has been paid out.