Does every car need to be insured?
If you want the short answer, yes. No matter how carefully you drive, there is always the risk of accidents, vehicle thefts, hijackings and other unexpected events on the road – and even when your car is parked at home or in a parking lot.
Since most of these are out of your control, you need to know that you’re protected financially if something happens to your car, and that’s where car insurance comes into play.
Insurance policies – how do they work?
There are always a lot of confusing things circulating about car insurance policies, so let’s break it down to the basics.
A policy is basically an agreement you make with your insurer, and it goes something like this:
- You agree to drive and maintain your vehicle responsibly and avoid risky behaviour on and off the road, and pay a certain amount (called an insurance premium) each month.
- Your insurer agrees to cover some (or most) of the costs if your car is stolen, hijacked, damaged by fire or flood, or ends up in an accident.
Now, you may be wondering what exactly you’re signing up for when you promise to drive “responsibly” and what driving habits count as risky. All of these details are included in your insurance policy agreement – and you’ll need to read it carefully before you sign.
The three main types of car insurance
While you’re reading through your insurance policy, the first thing you’ll need to make sure of is what type of car insurance you’re signing up for. There are three main types:
- Third party car insurance – this covers other vehicles and any property you might damage if you have an accident on the road. Your own vehicle isn’t covered at all. You will be completely liable for the cost of any repairs or replacements that may be required
- Third party, fire and theft insurance – this will cover you for third party claims, and will also cover the cost of repairing or replacing your vehicle if it’s stolen or damaged by fire. However, if your vehicle is involved in an accident, you won’t be able to claim for repairs or the cost of replacing it if it’s a write-off.
- Comprehensive car insurance – this covers your car against theft, hijacking, fire, damage, and covers the cost of repairing or replacing your car if you’re in an accident. It also includes third party insurance that covers other vehicles.
If you’re financing your vehicle, choosing between these three options is easy – your bank or vehicle finance company will probably insist on comprehensive car insurance. Even if you paid cash for your car, would you honestly risk the possibility of ending up in an accident without full cover? Comprehensive car insurance is definitely the way to go.
How much should you be covered for?
Ideally, you want your insurance cover to pay for the costs of repairing or replacing your vehicle, without any shortfalls that end up costing you extra cash.
The best plan is to insure your car for its retail value. This is the average price that a dealer would sell your vehicle for, and is higher than the amount they would pay you for your vehicle. Retail value is the highest value your vehicle can be insured for. Most vehicles lose their value over time, and insurers only pay out the current value of your car.
Now that you know the basics of car insurance, you can cut through the jargon and choose the insurance policy that suits your needs – take care on the road!