What are the principles behind motor insurance?

Motor insurers perform many tasks when you apply for insurance that may confuse you. You will be asked a good deal of questions, some easy, some hard. However, you will be aided greatly if you can understand as much as possible about the principles that lie behind motor insurance.

Insurance is ultimately about your money. Your risks are taken and some are transferred to a provider of insurance. A damaged car can cost a massive amount of money if it needs repairs or needs to be replaced. Worse, should you have injured someone in an accident which is your fault, you are obliged to pay them compensation. This could be a much higher amount. You have made a financial investment when you buy a car, and also your legal obligations should you use a vehicle are manifold. It's your money, so you should protect it.

An important principle is insurable interest. You must be in some sort of position where if your motor vehicle is stolen or damaged you would suffer financially. Conversely, you should be the one who benefits should your car be in good condition. So, if you think you can take out insurance on your financial advisor's car, wait until it crashes and then claim a good deal of money, you would be wrong. You need to have a financial interest when you are insuring something.

You receive an indemnity when you receive a payment. Thus a 'contract of indemnity' is another term for a motor policy. You should be put back in the same position financially that you were in before the loss occurred. You can sometimes, like in house insurance, get a 'new for old' policy, which enables you to have indemnity agreed when you buy the motor insurance rather than when you claim. So when you hear about a refusal to indemnify, it is when an insurer refuses to pay.

Should your car be damaged by another car, then what normally happens is that your insurer has to pay for it, and their outlay is reclaimed from the responsible driver. This process is called 'subrogation'.

Then there is the principle of 'proximate cause', which is when you have to show that a loss you incur has been caused by a peril that is covered by your policy. Should there have been an effect from which you suffer a loss, and there was a chain of causes that have led to it, what needs to be considered is the immediate cause, not the remote cause. This immediate cause is also called the proximate cause, and is quite an old principle, having been introduced by 'Pawsey vs Scottish Union and National Insurance' in 1908.

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

Motor Insurance

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> Motor Insurance Advice.....
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> What are the principles behind motor insurance?
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