There are so many unpredictable occurrences that have a slew of implications for your vehicle. It could get damaged or stolen, which would require you to either replace or fix it. There’s also the possibility of getting in an accident, which could have financial implications for covering costs that relate to both the vehicle and medical treatment.
Additionally, you’re not the only person that needs consideration. What happens if you get in an accident in which you’re at fault? If so, you are financially responsible for addressing all damages and issues that arise from the incident.
Sometimes, the costs that arise from these unpredictable occurrences are simply astronomical. People don’t always have the kind of money lying around that is needed. Imagine getting distracted while driving and slamming into the back of a Lamborghini. What if the driver gets injured too? Can you afford to repair or replace his car and to address his medical expense needs?
While there are obviously people who could easily cover such costs, the average person can’t. That’s where insurance comes into play. While drivers can choose to have settlements to address mishaps out of pocket, insurance provides the protection that drivers need to get them through any unfortunate event.
In most countries around the world, insurance is a legal requirement. If you’re caught driving without the correct kind of insurance, you could face hefty fines or even jail time.
Available Insurance Types
There are generally two recognized types of car insurance that are available for drivers to choose from. The first is comprehensive insurance, and the second is third-party insurance. The differences boil down to the pricing and provisions that fall under each. This article explores both kinds of insurance to highlight all the information that you need to understand where both are concerned.
Comprehensive Car Insurance
The first kind of insurance to be covered is comprehensive car insurance. As the name suggests, it is very far-reaching in what it covers, and it can be a real get out of jail free card. In fact, comprehensive policies are built in such a way that they’re akin to providing you protection from terrible luck.
There are many strange and unpredictable events that can happen in the world of car ownership, and you don’t want to be left in a terrible bind because one occurred and you weren’t protected.
While comprehensive insurance has a lot of provisions, it doesn’t cover everything that you can imagine. For example, when you are at fault, many of these policies don’t cover any injuries or damage that occurs. Note, however, that most comprehensive insurance policies cover you when there is no definitive proof that you were at fault in an incident.
There are some locations in which those events can be covered under a comprehensive policy. However, the most likely scenario is that there is separate liability insurance that provides coverages for those occurrences when they pop up.
Here is a list of some of the things that you would normally file a comprehensive insurance claim for:
- Glass damage
- Falling objects
- Disasters including earthquakes, lightning, wind, floods, and hail
- Hitting animals
- Objects kicked up by other vehicles
You should not confuse collision insurance with comprehensive insurance. The two terms are used interchangeably by many people, but they are not the same.
Comprehensive insurance coverage tends to provide protection against random events that you have no control over. If there were an explosion at a gas station that destroyed your vehicle, for example, this would be covered by a comprehensive policy. That event is out of your hands and very random.
Collision insurance covers accidents with other vehicles or inanimate objects. Since comprehensive insurance policies cover accidents with animals, collision policies do not. This is because animal accidents fall under the category of being out of your control.
Is Comprehensive Insurance Required?
As far as the law is concerned, a comprehensive insurance policy is not required. If that were the case, then policies such as third-party insurance policies would not exist, since they offer less protection than comprehensive policies.
While there is no legal requirement, you may find that you are mandated to get this kind of insurance for a vehicle based on the way you go about purchasing it.
The most common example is what happens when you purchase a vehicle via an auto loan. While a car is a great investment, just about anything can happen on any day that you drive the car. There are an average of six million accidents per year in the United States alone. This doesn’t even begin to speak to all the other random occurrences that could happen.
A lending agency needs to ensure that the investment is protected. If you are to default on your payment, the institution would simply come and take the vehicle from you. This is the protection that the lender has. However, if that vehicle were to be destroyed, that would no longer be the case. There would be nothing to take if you stopped paying.
Therefore, lenders tend to require that you get a comprehensive insurance policy for the vehicle. It is typically stated as a loan requirement.
If the vehicle is not bound to a loan, you may want to consider a comprehensive policy if the car has substantial value. The thing you need to consider is the extent to which you are willing and able to replace the vehicle if it were to become totaled, stolen, or otherwise inoperable.
If you would replace it but you couldn’t afford to, then it is in your best interest to get a comprehensive policy.
Comprehensive Insurance Deductible
Most comprehensive insurance policies have a deductible. The good thing is that you are typically given freedom of choice where this deductible is concerned. If you choose a higher deductible, it tends to result in a lower insurance cost. While this is advantageous, remember that you are required to pay that deductible out of pocket before the insurance company pays for a claim. So your deductible should be something you can afford.
Third-Party Car Insurance
Now that comprehensive insurance has been covered, it’s time to look at the third-party alternative. Third-party insurance is the minimum legally accepted level of coverage that you can have when driving a vehicle.
Anything that happens to you or your vehicle is not covered under this kind of insurance. However, if you ever damage someone’s vehicle, the insurance policy covers the expenses associated with repairing that vehicle. Medical expenses are also covered. Many third-party policies also cover the passengers that are traveling with you.
There is an alternative type of third-party insurance known as “third-party, fire, and theft,” which covers a bit more, but this basic version is the more popular alternative.
If you are more inclined to pay for any damage to your vehicle without getting your insurance company involved, then third-party insurance is optimal for you.
You can think of this type of insurance as a form of liability insurance to help you cover any damage if you’re at fault in an accident.
Third-Party, Fire, and Theft (TPFT)
This is an alternative to basic third-party insurance. It covers third-parties in accidents where you are at fault, and it also gives you some additional coverage for your own vehicle. If your car is stolen, then you can use your TPFT policy to claim for a replacement.
In fact, even if a theft is unsuccessful, a TPFT policy covers you for any damage that the thief may have caused while attempting to steal the vehicle. So if your windows are broken, your locks are destroyed, or your radio is gone, you can get coverage for that.
Of course, if there is any fire damage to your vehicle, you are also covered. The source of the fire is not much of a consideration, as accidental fires are given the same level of consideration that arson is. If your car was burned as a result of arson though, ensure to report it to the authorities because you cannot make the claim without the crime reference number.
Comprehensive Insurance vs. Third-Party Insurance
Now you’re familiar with both kinds of insurance, it’s time to look at how they differ, and which one is better for you.
The first area of difference is price. Since comprehensive insurance provides so much coverage, it should be the more expensive insurance type, right? Well, in many cases, the comprehensive option is cheaper, but there are cases in which third-party insurance is more expensive.
In fact, TPFT insurance is less costly than third-party insurance in most cases. So, why is the policy that gives the least coverage potentially the most expensive? Well, basic third-party insurance is statistically taken out by people who end up claiming against their policies.
This means that insurance companies see third-party only policies as being high-risk, which leads to a higher cost.
This is arguably the most important distinction of all. While comprehensive insurance doesn’t always cover occurrences that you have control over, the incidents that are covered offer protection to you, your passengers, and your vehicle.
A third-party plan only covers the other person when you meet in an accident, and you’re at fault. You can get a TPFT if you want some additional protection. This would give you coverage against fires and theft on top of your basic third-party offerings.
Which Insurance Type Is Better?
There is no universal answer to this question that applies to everyone. The insurance type that you choose depends on the variables that come together to make up your situation. Are you getting a loan to buy the car? If yes, then you must insure comprehensively. Is your vehicle a high value one? If yes, then insure comprehensively, just in case it needs to be replaced.
Are you the type of person to address your own damages out of pocket? If so, then get a third-party policy, so that you can claim if you damage someone else’s vehicle.