Auto Insurance/Vehicle Insurance
Vehicle insurance is known by various other names such as GAP insurance, auto insurance and motor insurance. Vehicle insurance is the insurance purchase for vehicles like motorcycles, cars, trucks and other such vehicles. This type of insurance provides financial shield against damages occurring due to accidents and collisions. This insurance covers body injuries as well as physical damage to the vehicles. This insurance also covers any liability arising out of such mishaps. Some vehicle insurance plans also provide shield against theft and damages to the vehicle due to mishaps other than the traffic collision.
Different countries have different regulations regarding vehicle insurance. These regulations also have different interpretations for various terms used. Many countries have made it mandatory for the vehicle owners to obtain vehicle insurance before using the vehicle. Many countries require such insurance even for keeping your motor vehicle on public roads. In most of the countries, the insurance is tied both with the vehicle and the driver.
There are several ways for levying insurance charges. Many jurisdictions exercise “pay as you drive” system of vehicle insurance. Under this insurance scheme, the insurance charges are made a part of gasoline tax or petrol tax. The charges commensurate the miles or kilometers driven. This scheme has been lauded for streamlining collection process. It also addresses the issue of the efficiency of the insurance system.
There are different vehicle insurance plans and these plans offer different levels of coverage. Generally, insurance policies may cover some or all of the items such as the medical payments for the insured party, indemnification of physical damage to the insured vehicle, medical payments related to the third party or parties involved in the mishap, physical damages occurred to the third party vehicles and theft and fire losses. Some insurance policies also provide coverage for injuries sustained by persons riding in the insured transportation irrespective of the fault in the auto accident. Different policies have different coverage and these terms and conditions are specified in the documents. The vehicle can also be insured separately for different types of damages such as fire and theft.
Vehicle insurance policies have various clauses. It also has the concept of ‘Deductibles’. Deductibles are the excess payments which are paid every time a vehicle is repaired and billed to the insurance company. Such payment is made to directly to the service provider or the garage or service station. If a car is rendered ‘write off’ or is totaled in the mishap, then insurance company may deduct such excess payment from the settlement due to the insured party. However, in certain cases insured party may reclaim such deductibles. As an example, if the accident occurs due to the fault of the third party and such third party accepts the fault, then in such case, insured party can claim deductible from the third party’s insurance company.
Deductibles may be of different kinds. A compulsory deductible is the minimum excess payment that an insurer requires the insured party to pay. Such deductibles are determined on the basis of various parameters such as personal details, insurance company’s policies and driving history. Voluntary deductibles are other kind of excess payment. This type of payment is made to reduce the premium to be paid. These deductibles are generally over and above the minimum compulsory deductibles. Insurance companies generally offer discount on insurance premium if the insured party agrees to pay voluntary excess deductible, since such extra payment can reduce financial obligations of the insurance company.
Insurance companies use various criterions for determining insurance premium. Such premium amount may be mandated by local government or it can be set by the concerned insurance company. However, such companies are required to follow government set regulations and rules. Generally, insurance companies can exercise more discretion while pricing physical damage coverage. The companies generally determine the premium on the basis of actuarial valuation. Such valuations are done with the help of statistical models. Various factors used to determine are the car model, usage of the car and personal profile of the driver. Luxury cars tend to have higher insurance premium.
Insurance premium is generally higher for teenage drivers with no driving record. However, many insurance companies provide discount offers to such drivers if they pass or undertake advanced driving lessons. Some companies often put restrictive clauses in policies issued to teenage drivers. Such restrictions include ban on driving after dark. Similarly, insurance premium also tend to increase for drivers above the age of 65 or 70. Such drivers may also be asked to fulfill additional requirements in order to receive insurance coverage.
Insurance companies used to discriminate on gender basis. The European Court of Justice decided that such gender discrimination constitutes the breach of EU equality laws. In the US, driving record can also be used to determine the premium payable. The companies can levy higher premium on drivers with moving violations and other such offenses. Such laws may differ from one jurisdiction to another.
Lately, the insurance companies have started using credit ratings as a factor for determining insurance premiums. The companies are offering lower rates to the individuals with higher credit score. The rationale behind such discrimination is that the people with higher credit score are more responsible and have better means of maintaining their vehicles in proper condition. Some car insurance companies also base their premium calculation on the usage of the car. They may offer low mileage discounts. Some companies use reasonable distance estimations for this purpose. Under this method, road conditions for driving, the commuting distance between frequently visited spots are taken into account. Insurance companies may also use odometer based systems for determining the insurance premium payable under such scheme.
There is also a growing trend towards behavior based insurance. The proposed plan recommends the use of non-intrusive methods for detecting drunk driving. Such methods may also be used to determine other types of risky driving behavior. A US company has filed the patent to integrate such technology with usage based insurance to create a new type of insurance plans.