Cheap Car Insurance - A Guide to What Car Insurance Terms Mean


Any car insurance policy is at its core a legal document, and is a contract between the policyholder and the insurance company. This means that in effect if there is a claim or any other type of a dispute certain things in the insurance policy will be dealt with on a contractual basis. Every insurance policy will have a list of terms that it defines as to their meaning. It is important to understand what these mean because they could affect the outcome of a claim or certain conditions upon which you or the policyholder drive.

The insurance policy will specify the name of the insurance company and possibly any parent company. It will also specify the name of the policyholder, in most cases an individual or possibly a small business. This is important as the specified in the contract is actually between. In addition to the insurance policy, there is quite often a legal requirement to issue what is known as a certificate of insurance. This is normally much smaller, from a one page document that spells out the main conditions of the insurance policy as they meet the legal requirements of the area that the insurance policy applies to. This is normally a paper document, but increasingly could also be an electronic document as well or instead of a paper one.

The term indemnity is used a lot in insurance. Its literal meaning is that the policyholder is placed in a financial position where he does not suffer a loss as a result of damages or a claim made against him. This means in effect the insurance company will reimburse him for any moneys that he may be liable to, or as a result of loss he suffers from his car being damaged. This is a legal principle so if unclear as to exactly what it means please consult your policy document.

Most car insurance focuses on private motor vehicles. There are other types of motor insurance which will be looked at, but in the majority of cases the same principle applies. The other important definition that will be in your policy document refers to the market value of the vehicle insured. This often a major bone of contention if and when a claim arises as an insurance company pays out market value of the vehicle, that is often considerably less than the policyholder thinks the vehicle is worth.

The insurance company, will pay what it considers to be the market value of the car at the time of loss. This will take into account its age and mileage, number of owners, deterioration of initial cost etc etc. The intent is that you do not receive benefit from the loss. This means that you are placed in exactly the same position financially as you were prior to the loss. Most people think this unfair and they should receive essentially a replacement cost of their vehicle. It is worth confirming with your insurance company this point if it is of major concern to you.

Your insurance policy will also include what is known as an excess. This is normally an amount that you are expected to retain in the event of any loss happening. It is normally quite a small amount but can be significantly more in order to reduce your annual premium.

Your insurance policy as a legal document will also specify and spell out every single piece of information that maybe potentially relevant in the event of a claim or dispute arising as the result of the insurance. This includes a number of what may seem to be fairly obvious statements, but it is worth checking what they mean. The insurance policy will define the geographical area of where the car may be used, who can and cannot drive it, the period that the insurance runs for, what your insurance company means by a no claims bonus and any other endorsements or relevant points concerning additional coverage.