A car is an expensive investment. It is best to buy some kind of insurance to protect this investment. For payment of a monthly or yearly premium, one can rest easy that financial costs arising out of accident and other calamities are taken care of. If you won a car which costs USD 20,000 and the week after you purchased you had an accident which crumpled it, do you have an extra USD 20,000 lying around? Do you have enough to pay for the damage you caused to the other vehicle? Not usually. That is why though expensive auto insurance is mandatory by law. It helps defray the cost of any unforeseen tragedy.
Car insurance is important because it allows a person to financially compensate another person for his legal liability in the event of injury, death or property damage. If a person is injured and another driver found to be negligent, he or she may be held responsible for significant amounts due to medical expenses and damage to property. At this point, the responsibility is huge because these amounts can often quickly accumulate and ultimately exceed the means of payment for the average person. A third party victim may suffer the loss of income and savings and probably someone who has to provide large sums throughout his life to sustain him. It is unfair to subject anyone to these problems and hence liability insurance is usually mandatory.
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Car insurance is a simple way to transfer risk. For a yearly premium, you can transfer your legal commitment to a company with large sums of money and protect your own finances. Without this, people may not have adequate financial ability to fulfill their legal obligations. Car insurance is an inexpensive way to transfer the liability caused by accidents for most people.
Coverage of physical damage is also important because it responds to collisions and other threats such as fire, theft, hail, and vandalism.
Comprehensive Car Insurance Meaning & definition
Auto insurance exists to protect us from financial loss in case of an accident. There are many different types of auto insurance with several popular add-ons or riders. The most basic would cover the liability arising out of a collision with other vehicles due to our fault. It would also meet liability arising from injury and death of occupants in the other vehicle. This is called third party insurance. Third party insurance is mandatory by law.
Along with third-party insurance, there is also collision insurance which covers damage to our own vehicle. Besides these types of insurance, there are two other important add-ons which are comprehensive car insurance and zero depreciation car insurance.
Comprehensive car insurance also is known as complete cover insurance as its name suggests provides for all types of damages to your vehicle other than those due to the collision. Usual auto insurance covers third party and theft. But comprehensive car insurance covers damage to your car for causes other than collisions such as flood or vandalism. Though it is not required by law it is one of the most popular types of car insurance because it provides peace of mind. It is normal for leased vehicles to require comprehensive car insurance.
A full list of types of losses which are covered by comprehensive car insurance is given below –
- Falling Objects
- Fire
- Theft
- Explosion or Earthquake
- Windstorm
- Flood and water damage
- Vandalism
- Mischief
- Rioting and Civil Unrest
- Contact with Bird or Animal
- Glass Breakage
What is depreciation?
Before discussion about zero depreciation car insurance plans, you have to understand what is depreciation and its effect on insurance. Due to age and wear and tear any machinery reduces in value over time. The accounting term for this reduction is called depreciation and usually calculated as a percent. Let us say you have purchased a car for USD 10,000 and depreciation rate is 15%. A year later its value would be USD 8,500 and after two years USD 7225. If the windshield of the car which costs USD 150 broke then in the first year you would receive USD 150 as claim amount but in the second year you would receive 15% less i.e. USD 128 and would have to pay USD 22 out of pocket. Of course, this is a highly simplified illustration because, in reality, different car parts have different insurance rates.
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 Zero Depreciation car insurance explained
Zero depreciation car insurance provides full coverage of the motor vehicle without any deductions due to its age. Zero depreciation is usually an additional rider to the normal car insurance plans.
In the case of a claim with a normal insurance policy for a car, the insurance company does not take into account the actual costs and only reimburses the depreciated value of spare parts.
Zero depreciation car insurance includes the cost of replacing parts made of glass and plastics or fiber. The insurance premium for zero depreciation is marginally higher than the regular car insurance premium, but the insured is entitled to a full refund in the event of a claim.
If you have bought a new vehicle or vehicle for less than three years, you can buy an insurance vehicle without depreciation. If the vehicle is over three years old, you will have to buy normal car insurance.
To ensure that people do not file bogus claims, a zero depreciation car insurance policy restricts the number of claims which can be made. Zero depreciation car insurance does not include extra accessories fitted to the car such as it would not cover a gas conversion kit fitted later.
Reasons to buy zero depreciation car insuranceÂ
- Luxury cars which have very high depreciation costs benefit from zero depreciation insurance.
- For those who worry about small dents and scratches on the car and like to maintain it well.
- For those who live in an area with high traffic density and probability of an accident is higher.
- If you are not a very able driver and would probably be in an accident.
It can be clearly that comprehensive and zero depreciation insurance are for different purposes. Comprehensive insurance is subject to depreciation and will pay only a percent of the damaged whereas that is not the case in zero depreciation which pays full cost. However comprehensive policy can be renewed for many years whereas zero depreciation policies are only for a limited number of years when the car is relatively new.
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