The Beginners Guide to Car Insurance - Club Auto Insurance

What does it all mean?

If you’re a first time insurer (and lots of our Club Auto clients are) the task of taking out insurance can be daunting. You get peppered with TV advertisements but they don’t actually tell you anything that really helps you understand what is involved.

So at Club Auto Insurance we set about working out insurance jargon and what it means in plain, simple, English. When you’ve read this ring us if there is anything you still don’t understand. Read slowly and carefully and write down questions.

Cover:

This means the protection you obtain by taking out an insurance policy. There are various forms of motor insurance cover but in the main you will only deal with 3 forms of cover, they are (1) Full Cover (sometimes referred to as comprehensive) (2) Third Party Only (3) Third Party Fire and Theft.

Proposal:

Depending on which Insurance Company you approach you may be requested to complete a proposal. It is no more than a question and answer form which you are required to complete and sign. Answer all questions truthfully, but we will go into that later.

Policy:

This is a written document which is sent to you by the Insurance Company. It is a legal document but don’t get put off by that as the majority are written in plain English. Its evidence of your insurance so don’t throw it away –read it carefully and check that all your personal details are correct for example, correct car, year of manufacture, Rego and all drivers are named. Make sure you receive a policy if you have transacted your insurance via an Insurance Broker.

Market Value:

This is the most common motor insurance policy. In simple terms it is the actual value of the car at the time of the accident. It really comes into play when the vehicle is “written off”, you should be aware of your rights. The Insurance Company via its own assessor will obtain valuations (usually 3) then cross average those valuations and say that is the actual value. It is your right to obtain your own valuations and then compare them with those supplied by the Insurance Company. Usually the 6 valuations are averaged and that is what the Insurer will offer to settle on. That figure may not be the figure you originally insured due to depreciation.

Agreed Value:

This form of motor insurance is offered by some Insurance Companies but not by all. The reason that Insurance Companies aren’t keen to write agreed value policies is that at renewal time the sum insured must be reviewed and the Insured and the Insurance Company must agree the new value. Because of the difficulties in administration Insurance Companies tend to steer clear of agreed value policies. If you are prepared to go through the renewal process then it’s worth it. Agreed Value means the Insurer will pay that figure irrespective of the actual value so for example if you insured the car for $7000 at the start of the cover but after six months it was written off and only worth $5000, on an agreed value policy you would receive $7000 not $5000.

The other reason Insurance Companies are reluctant to issue agreed value policies is that by their very nature they attract elements of fraud. Having said that, agreed value policies are available but not from every insurer.

Excess:

This amount will be quoted to you when you make your enquiry. It means if you have a claim the Insurance Company will pay all claims that are in excess of that amount. For example if the damage was $1000 and your excess was $500, you pay $500 and the Insurance Company pay $500.

The excess will vary depending on your age, type of car, driving experience and in some cases the area in which you live. All amounts below the excess are payable by you. If you are not at fault the Insurance Company will try to recover your excess from any other person involved. Remember, however they are not obliged to do this, it is just a service to help you.

Insured:

In the main, that’s you but if the car has finance it extends to the Finance Company as well.

Insurance Company or Underwriter:

You get a mixture of these words but it all ends up meaning the same thing. It is the Company that provides your Insurance.

Section One of the Policy:

In the printed policy document it will refer to Section One and Section Two. Section One provides the protection to your car. Any damage to your car is made under Section One.

Section Two of the Policy:

The printed policy document refers to Section Two. This section provides protection where you are involved in an accident with another car or another object. Put simply if the accident was your fault Section Two covers the costs of the other vehicle or item.

Third Party:

In short the Insurance Company is the 1st party, you are the 2nd party and the Third Party is the owner of property you may hit (usually another vehicle).

Third Party Only Cover:

This is cover (protection) for the cost of repairing the Third Party vehicle. If you are found responsible for the accident this policy does not provide any cover to your vehicle so in general the premiums are fairly low. WARNING, do not use this policy if you have finance on your car. The Finance Company will not approve Third Party Only as it provides no protection to them.

You should, however, consider Third Party Only when your vehicle is of low value as full cover may be uneconomic.

Third Party, Fire and Theft:

This policy is generally available but not always. The cover provided is identical to Third Party Only but is extended to cover fire damage to your vehicle and theft of your vehicle. The premium is much lower than full cover and you still have theft cover which is a real risk. Fire risk in cars is usually small but its in the policy so you might as well have it.

Comprehensive Cover:

This is usually referred to as Full Cover but essentially they mean the same thing which means cover to your car and cover for damage you do to other cars.

Premium:

This is the amount you pay to the Insurance Company. It is usually quoted as being paid annually but installment payments are normally available. Please note the insurance is not valid until you have paid either the first installment or the full annual premium.

Period of Insurance:

This is the date your cover commences to the date your cover expires. Usually the Insurance Company advise you when the policy is expiring in order that you may renew it.

Accessories:

These are the additional items in and on your car which are not standard when the vehicle is manufactured. Items that fall in this category are stereo systems, mag wheels, GPS etc. If you want them insured you must tell the Insurance Company.

Modifications:

This is where you have changed the car from its standard manufactured state by doing any of the following, for example:

  • Lowering the body
  • Changing the wheels
  • Changing or adding to the motor
  • Exhaust changes
  • Body Panel changes

This is not a complete list but you get the idea.

No Claims Bonus:

In its purest form it is just what it says, a reduction on a renewal premium to recognize your good driving record. At the start of your insurance there will be no bonus (unless you had previous insurance, claims free). After year 1 with no claims you earn a bonus, after year 2 still no claims, the bonus increases until after 3 years you are on the maximum bonus.

It is now that you need to be warned as mainstream Insurance Companies are making their own rules, i.e. a life time guaranteed no claim bonus, that is not a bonus, it is a marketing ploy to get your business i.e. premium discounting.

The destruction of the original No Claim Bonus is almost complete as Insurance Companies have turned it into a No Blame Bonus. Quite frankly it’s just a joke and the Insurance industry are to blame not the clients. However, we have explained, hopefully, what the old No Claims Bonus was all about.

Knock for Knock:

This term, when used, refers to a contractual agreement between Insurance Companies that they will not take legal action to recover claims against each other in order to avoid expensive legal bills. Losses, no matter what, are paid under the policy that each Insurance Company holds, without any limits. Its only advantages to the client is it tends to speed up the claim process. In certain cases your policy excess can be recovered.

However, watch out on renewal if you were not at fault, to ensure you continue to receive your no claim bonus.

Disclosure:

We have left this word as one of the last to be explained because it is the most important one that you must understand.

The success of your insurance policy depends on this word. Disclosure means what you are required to tell the Insurance Company at all times, not just the beginning, as it is a continuing responsibility. Insurance policies are contracts of good faith so you must always tell the truth. Disclosure covers things like modifications, previous accidents, convictions, physical disabilities, for example leg amputation, 1 eye etc, Also previously being denied insurance, who will drive the car, policy cancellation. That is not a complete list but covers in general the sort of things you must disclose.

More motor insurance claims are declined for non-disclosure than any other cause. If you are in doubt about convictions get the court to print you a list, it’s your right and it’s free. That way you don’t forget anything.

Non-disclosure of things you think are not important may well be viewed differently by the Insurance Company, and it’s too late to make the disclosure after the accident.

Policy Exceptions:

All motor insurance policies have exceptions and those vary slightly from Company to Company. You should read them carefully in order that you comply with the policy. In the event that you make a claim which is declined you are entitled to ask the claim be reviewed by the Insurance Company Management. In the event that the claim is still declined you have the right to request it be reviewed by the office of the Insurance Ombudsman. This review is at no cost to you but it is a cost to the Insurance Company. In the event that you disagree with the Ombudsman decision you still have a civil right to take the matter to court.

We hope all of this gives you a better understanding of car insurance. For the record less than 10% of people ever bother to read their insurance policy yet it is really important.


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