Car insurance can provide a number of different challenges for both consumers and insurance companies. This is in part because any consumer who owns or drives a car is normally required by law have some type of liability insurance, and insurance companies can offer differing levels of cover at different prices, but are often constrained by high repair costs, and intense competition.
Types of insurance cover
Although this can differ by country and jurisdiction, the legal requirement for insurance virtually always relates to some type of third party liability cover. This is meant to make sure that if a car hits another car, an individual or any type of property, then there is some type of insurance in place to make sure that they can be fairly compensated.
In certain countries like the UK, the level of liability is normally unlimited, meaning that so long as someone has a legitimate third party liability insurance in place, then whatever the level of damages they should be covered by the insurance company.
Other countries such as in the US, will have a minimum legal level of liability, which can differ by state, and an obligation on the individual to decide what level of liability cover they wish to purchase on top of this.
Other countries will have a hybrid version of these two types of approach to liability insurance. The important thing is to understand what the requirements of the country are and to make sure that the individual motorists complies with them.
This can potentially be a problem if someone is renting a car in another country, and are not necessarily familiar with what those insurance requirements are, so care should always be taken to make sure that local laws are complied with, and any additional liability cover purchased if deemed necessary.
Below are some examples of the most common types of cover, although the names of them may differ by jurisdiction.
Third Party Insurance
This is the most basic type of cover and simply gives the individual indemnity against claims for third party damages. As above this may be for an unlimited amount, or for specified amounts by which the individual can increase the level of cover.
This insurance will normally cover liability against another vehicle, an individual or physical damage to any type of property.
Third Party Fire and Theft
This type of insurance policy still exists but is largely historical in some ways. It provides cover for third party liability as well, but also included insurance cover for theft of the vehicle and if the vehicle caught fire.
This type of policy was seen as a cheaper version of a more fully comprehensive policy, providing some type of basic cover against standardised risks.
However, costs mean that there is often little difference between a third party fire and theft policy and a more comprehensive policy, meaning that it is less attractive in terms of cost.
Comprehensive Insurance Cover
Often such policies describe themselves as fully comprehensive, meaning that they cover more than just standard third party liability insurance. The extent to which they include different levels of cover can vary quite considerably, but generally include things such as fire and theft cover, if the vehicle is damaged in any way, windscreen cover, breakdown cover and providing cover to drive another car, normally for third party liability only.
Insurance Add-ons
Given that the main cost to the insurance company is a potential liability claim, many companies will offer add on levels of cover to a comprehensive policy which can seem attractive to a driver, and can be an extra source of income for the insurance company
Some of the most common ones are listed below
Temporary Car Insurance
This can be an attractive option if someone needs to temporarily insure another car, either by way of buying and selling one, or simply if they need additional insurance at any level.
Courtesy Car
Many insurance companies will offer a courtesy car as standard in the event of the insureds car being damaged or not usable due to an accident. However, some insurance companies do not and offer it as an additional add on.
Even if it is offered it is sometimes for a fairly limited time period, With the option to extend it for longer at an additional cost.
Multi Car Insurance
Many insurance companies offer people the option of insuring more than one car at a significant discount. This normally applies to families where parents and children may have their own cars and can be attractive from a cost point of view.
It gives the insurance companies a lead in to new clients an new sources of business.
Pay as you go Insurance
The idea of pay as you go insurance has been around for some time and is highly attractive to some people but not many.
It allows the insurance company to provide cover on the basis of when the car is actually in use, which should in theory mean a cheaper level of insurance for the insured.
It does require the car to be fitted with some type of telematics, so that the insurance company can actually trace how and when the car is being used. This obviously had serious privacy implications, which many individuals resist.
Breakdown Cover
This is either included in comprehensive insurance or quite often offered as an add on. It is sometimes included free for the first year and then chargeable thereafter. It offers different levels of cover for anyone who has a breakdown in a vehicle, ranging from roadside assistance through to a local tow through to complete repatriation of the car and passengers to their home address.Over 50s car insurance
Insurance companies generally rate drivers over 50 as being safer than those who either newly qualified, or who still in their late teens or early 20s, and offer significant discounts for these drivers who have reached this age.
This is often reflected in not only cheaper premiums, but also in significant no claims discounts which are enabled as a more long term loyalty process.
Business / SDP Cover
SDP is the traditional acronym given to social, domestic and pleasure. This is to differentiate it from any type of business use.
What the car is used for is a significant determinant in how much the insurance company will charge the driver. Any car that is used for a business purpose increases the risk significantly, and the insurance company will charge accordingly.
If a car is simply being driven for normal day-to-day use, not including any business related activity then it will be referred to as social domestic and pleasure usage, which will carry a lower rate.
Sometimes a car that is rated for social domestic and pleasure will also be covered for driving to and from the insured’s place of business, so long as it is not used in relation to any of the business activity itself.
If it is the car will need to have a separate type of insurance policy, specifically dedicated to its business usage.
Young Driver Insurance
Horror stories abound about the cost of insurance for newly qualified and young drivers. Although statistics vary, it is fair to say that insurance companies view anyone below the age of 25 as being very high risk and charge significant premiums to this age group, whatever their type of car.
Obviously the more high risk the car, then even the more expensive the insurance. This has proved a real obstacle to many young people getting insurance, often having an impact on their ability to secure a job, especially in areas where public transport is minimal or non-existent.
There are some things that a younger driver can do which will help to build up a reasonable no claims discount, but these are more aimed as a long term solution to providing affordable car insurance, which will make minimal impact in the immediate term.