A car is the second biggest investment a person is likely to make, the first being a house. Risk management is a financial scheme wherein the owner of an asset approaches a bank to insure the asset. The bank bears responsibility to reimburse the customer of any losses he/she may incur due to damage or loss of the asset, the customer in turn pays the bank a monthly or annual premium for this service. The bank or the insurance provider decides on the premium by analyzing the risk factors involved. The risk factor of an asset is based upon its value and the chances of it being stolen or destroyed. If anything does happen to the asset, the insurance company initiates an investigation into the matter to ensure that the loss or damage wasn’t intentional. If the case is legitimate, the insurance company makes the payout of the sum insured to the owner of the asset, or the benefactors of the policy.
Since a motor vehicle is also an asset, the function of insurance works similarly for vehicles too. Vehicle owners take out “insurance policies” from auto insurance companies, and in turn pay them a “premium”. The auto insurance company provides the customer with a “cover”, a guarantee of sorts, that if anything happens to the vehicle they will pay the customer the “sum assured”.
A few of the common auto insurance policies are mentioned below.
The most popular choice amongst motor vehicle owners, road risk covers third party risk at a very low cost to the insured party. Any damage caused to the third party is covered by the insurance company. One may also opt for a more comprehensive road risk cover which also covers any damage the third party does to you and your vehicle; needless to say that this cover will attract a higher premium in comparison to road risk.
Collision cover protects the driver of the insured vehicle. In the event of an accident the policy will cover any losses caused to the driver or the vehicle of the insured person. Collision cover proves to be worth its weight in gold when the other person involved in the accident doesn’t have liability cover. In such a scenario if you didn’t have collision cover, you would need to sue the other party involved in the accident to reimburse your medical and workshop bills.
Depending on the person to be insured, Medical cover can be the best or worst kind of cover. Traditionally most insurance agents and auto gurus would tell you that medical cover is a must, and without it, you will be at great risk. Most people today already have medical insurance; which makes medical cover in your insurance policy redundant. A customer who has two medical insurance policies can make a claim from only one of the insurance agencies, which basically boils down to a wasted premium.
Other popular types of cover provide protection against vandalism, fire, theft, non collision damage, and the like. No fault auto insurance is worth every penny and provides cover regardless of whose fault the accident was. The minimum insurance cover you would need to purchase depends on the state you live in. In most states in the United States, it is mandatory to have adequate cover to pay for damages caused by you to the other party in the event of an accident.