What does Insurance mean?
Can’t really discuss car Insurance Companies without understanding the actual meaning of insurance, can we?
Insurance is simply an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for the payment of a specified premium. This means that if the owner of the insured pays the premium regularly, usually monthly, then the insurer will compensate for damages to the insured which isn’t caused by the deliberate action of the owner.
Meaning of Car Insurance
Automobile or car insurance is a contract between an automobile owner and the insurance company that protects the former against financial loss in the event of an accident or theft. In exchange for paying a premium, the insurance company agrees to pay the owner’s losses as outlined in his policy.
Meaning of Policy
Before you wonder what policy is, it is simply a document detailing the terms and conditions of a contract of insurance.
A policyholder is a driver known to an Insurance Company.
History of Car/Automobile Insurance
The history of automobile insurance predates the automobile itself i.e the idea of insurance has been around far longer than the car. It all began with Ben Franklin, who in 1751 got a group of men together in Philadelphia, United States of America, and had them pay into a pot.
The pot would be used if, one of their houses or businesses caught on fire. The idea was a good one, and in that first year, 143 policies were written. And as more people started owning property, more people wanted their property insured. And with the arrival of the dangerous and expensive automobile, the need for automobile insurance became immediately obvious.
The First Car Insurance Policy
The world’s first car insurance policy was written in 1897 by Travelers Insurance Company. The policy was written to a man named Gilbert Loomis, a resident of Dayton, Ohio, USA. Farther behind were licensing laws, which didn’t start showing up on the books until 1903. Supposedly, the process of getting insurance was simpler back in those days – nobody had to worry about details like driver’s license number and the likes.
Since that first policy for Mr. Loomis, the auto insurance train hasn’t slowed one bit. These days, people can get insurance on everything from cars to houses and even pets, for every eventuality from or theft. It isn’t unusual to see insurance companies writing up to a million policies in a given year.
As long as people keep having accidents, the future of auto insurance is bright. From humble beginnings in Philadelphia, through the Genuity and intelligence of Ben Franklin, the history of auto insurance is one of constant growth and adaptation, as people get themselves into more and different kinds of trouble.
Car Insurance Companies
Car Insurance Companies are, therefore, companies that render car insurance services.
Why do people need Car insurance companies you might ask?
Well, Car insurance works as a safeguard for one’s financial well-being and that of the vehicle in case of accidents, theft, or other incidents beyond the owner’s control. The car insurance company can pay for vehicle repairs, medical expenses, and damages or injuries the insured causes to another driver.
Car Insurance Companies agree to compensate a driver for losses incurred due to let’s say, an accident after the driver pays a deductible.
A deductible is an amount paid out of pocket by the policyholder before an insurance provider will pay any expenses.
How it works: If a driver pays a monthly premium of ₦800 on a policy with a ₦50,000 deductible. That person then gets into an accident, which results in ₦60,000 in damages to the vehicle. The driver would have to pay the first ₦50,000 out-of-pocket to repair the vehicle; the car insurance would then cover the remaining ₦10,000 balance. Conversely, a higher premium would lead to a lower, more desirable deductible, because the driver has put more cash to the insurance company up front.
The cost of a policy actually differs among drivers, type of car, and nature of use. Factors such as credit history and driving record help an insurer determine how much of a risk the driver may be. This helps make sure that the money being paid to the insurance company by the driver is will be proportional to the possibility of money that the company will pay out later, based on the frequency and severity of the claims of similar drivers in the past.
For instance, If a driver with three accidents signs up for a #300,000 comprehensive plan, a driver with a perfect driving record and credit would actually pay a lower premium for the same policy.
Also, a driver will pay more for the insurance of a Ferrari than for a Volkswagon. A driver will pay more for a vehicle used for commercial purposes than the one exclusively for personal and family use.
How Car Insurance Companies make their money.
Car Insurance Companies make money by calculating risks.
In most consumer activities, the customer exchanges money for a product or quickly performed service. Car insurance is a bit different in that it works this way: The customer pays a fee to the insurance company, and the insurance company may provide a service or financial assistance at some point (although if the service is never rendered, both the consumer and the company would probably be pleased). The company would be more than pleased to have made money. The consumer would be pleased that they never needed the service because it means one of the following:
- The car was never stolen
- Car was never crashed
- The car never caused damage to other people.
Car insurance companies make money through the strategic use of money. Insurers embower their policyholders into “groups” via the risk-assessment yardstick earlier discussed which are: type of car, driving record, etc. In each group, it’s likely that a very small percentage of these policyholders will bear a car accident serious enough to file a claim during the coverage period.
But assume that one policyholder in a particular group actually gets into an accident that results in a ₦500,000 payout by the insurance company. Then, imagine that the said policyholder has been a client of the insurance company at that time for five years, and has paid a monthly premium of ₦1000. That person has then brought in #60,000 to the insurance company. That would be a direct loss of #440,000 to the insurance company? But it wouldn’t be. That’s because proper calculations and management of risks spread the short-term financial burden of the payout over the rest of the group, the remaining members of which, likely haven’t received any payouts that cost the insurance company money.
Further, insurance companies are basically, financial institutions: They take in money and give out money, just like a bank does. Again, as a bank does, they invest the money of its customers and policyholders in investments that earn money. While the shared risk approach allows for large sums of cash available for claims payouts, investments are a long-term financial strategy, to make sure that the insurance company will have available cash for payouts, years down the line.
Finally, and which most directly affects the policyholder, insurance companies’ policies limit payouts. Limits of liability are set to match the premium rate paid by the customer.
For example, if the driver pays a monthly premium of ₦500, he may have a ₦100,000 liability cap; if he pays ₦2000 a month, the insurer may enable a ₦500,000 liability cap.
A liability cap, therefore, means that the auto insurance company won’t pay for damages or medical bills beyond the specific amount that the driver agrees upon.
Advantages and Disadvantages of Insurance Companies
Here are what you should know about insurance companies both their pros and cons;
Benefits of Car Insurance
1: customer Pays Less if an Accident Occurs
The biggest benefit of coverage is that customers will pay a small amount for protection. However, if a large accident occurs, the policy will cover those repairs. The average cost for an auto insurance policy is usually way below the cost of repair should a driver be involved in a single head-on crash which can amount to thousands of naira in losses. It is very clear that individuals pay less by having a policy than if they didn’t.
2: It Helps You Avoid Devaluation to Your Car
Some types of policies benefit customers by helping to prolong the life and the value of the car. Since no one can literally stop a random hailstorm from damaging the vehicle’s body, know if a tree branch will shatter the window, etc. However, if the car has a comprehensive insurance cover, losses incurred from the accident will be minimal. This saves customers money in the long term. It also helps them return the car to a marketable position in case they ever want to sell.
3: Customer Gains Peace of Mind
Knowing that there’s a policy that protects your vehicle can actually give you peace of mind. Car insurance helps an individual avoid having to face significant monetary losses.
4: It Safeguards Customers Against a Lawsuit
Even if an individual made a mistake and caused significant damage to another person’s property, they don’t deserve to lose their house or other valuable over it. With auto insurance, customers get help with claims others make against them in accidents. That includes legal defense if the need be.
Disadvantages of car insurance
- One of the main disadvantages of a car Insurance policy is that the individual might never need the service on the car for which it has been purchased for and there’s never room for a refund if that happens.
- People instinctively buy car insurance policies assuming insurance protects the vehicle. But Insurance representatives hide the specific clauses, which, in turn, reflect the customer at the time of claim settlement. Hence, these hidden clauses can lead to a total loss of investment by the customer.
- Primary and the major disadvantage of car insurance is the policy does not cover the entire vehicle. Only specific parts of the car are under damage coverage, the policyholder needs to verify hidden clauses in the document keenly before buying the policy.
- Most of the insurance companies take a time frame to settle the claim amount, which can actually lead to other losses in other areas if the victim is in a race against time. This is the problem most of the policyholders are facing.
How to buy Car Insurance in Nigeria –
Buying cars in Nigeria is now very easy and all you need is the following steps below and if you have any more questions or suggestions, you can still make use of the comment box or get us using the contact page.
10 Steps To buying Car Insurance
- Determine your state’s minimum insurance requirements.
- Consider your own financial situation in relation to the required insurance and consider whether you need to increase your limits to protect your assets.
- Review the status of your driving record — do you have any outstanding tickets or points on your driver’s license?
- Check your current coverage to find out how much you are paying.
- Get competing quotes from insurance websites and individual companies of interest to you.
- Make follow-up phone calls to insurance companies to get additional information about coverage.
- Inquire about discounts.
- Evaluate the reliability of the insurance companies you’re considering by visiting your state’s insurance department website, reviewing consumer surveys, and talking to family and friends.
- Review the policy properly before finalizing it.
- Remember to cancel your old policy after buying the new one
Types of Car Insurance covers in Nigeria
Get the full details and guide you need to follow up the details on the go;
Act Only Car Insurance Cover:
This can be referred also as a Motor third-party insurance or third-party liability cover, which is sometimes also referred to as the ‘act only’ cover, is a statutory requirement under the Motor Vehicles Act. … However, it covers the insured’s legal liability for death/disability of third-party loss or damage to third-party property.
Advantage: It provides protection against damages from accidents, even if you are at fault.
Comprehensive Car Insurance Cover:
This is the insurance coverage that protects your car against damage not resulting from a collision, as well as from theft. It covers a wide array of events that can damage your car, including vandalism, fires, and more.
Advantage: This is one of the best protection you can get for your car which is better than Third-party that only covers damages to others as the result of an accident that was deemed your fault.
Third-Party Only Car Insurance Cover:
If you get into an accident that was your fault, your insurance will cover losses to any third-party vehicles or property, but damage to your own car will not be covered. Similarly, if your car is stolen or damaged in a fire, your insurer will not pay out to replace or repair it.
Advantage: This type of insurance policy does not provide any benefit to the insured (The person buying the insurance). However, it covers the insured’s legal liability for death/disability of third-party loss or damage to third-party property.
Third-Party, Fire and Theft Car Insurance Cover:
In this case, you get the same cover for any third party and their property in the event of an accident that you are deemed liable for, but it also includes insurance for your own car if it’s stolen or damaged by fire. Plus, you would also be able to make a claim should your car be damaged by attempted theft.
Advantage: This provides cover for damage caused to other parties and their property in the event that you are responsible for an accident. It also covers the cost of your car is stolen or damaged in the event of a hijacking, theft, or fire.
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