FAQ: Motor Car Insurance

1. What are the types of insurance that I can buy to insure my motor car?

You have three options to insure your car:

- comprehensive
- third party, fire and theft
- third party only

There are three main types of losses covered by a motor insurance policy:

a) damage to your car caused by accidents
b) loss of your car due to fire and theft
c) liabiilty to third party for an accident caused by you.

The comprehensive policy covers (a), (b) and (c). The TPFT policy covers (b) and (c) only. The TPO policy covers (c) only.

Most owners insure their cars under comprehensive cover. If the car is old and has small market value, they may insure under TPFT or TPO cover.

2. What is the difference in premium?

The premium payable on a car depends on a few factors, such as the model of car, age of car, use of the car and the age, occupation and driving experience of the driver.

The premium for TPFT and TPO covers are about 65% and 50% of the comprehensive premium.

3. What is Excess?

The Excess is the amount that you have to co-pay for any claim. The insurance company will pay the amount that is above the Excess.

The typical excess varies from $300 to $1,500. If your Excess is $700 and the repair cost of the car is $2,500, you pay $700 and the insurance company pays $1,800.

4. What is No Claim Discount?

The owner enjoys a No Claim Discount if there is no claim during the year. The discount starts at 10% after one year, and increases by another 10% for each subsequent year, until it reaches 50%. If there is a claim, the discount is reduced by 30% or goes back to 0%.

If your premium is $1,000 and the No Claim Discount is 30%, you pay only $700.

5. How does the insurance company decide on its premium rates?

The insurance company studies the average claim cost for each type of vehicle and driver. This may be based on its own claim records or the claim records for the market.

It adds the marketing, administration and profit margin, to get the premium rate charged to the customer.

If the average claim cost for a particular car and driver is $1,000, the premium charged will be about $1,500 (usually about 50% more than the claim cost).

6. Do all insurance companies charge the same premium?

The insurance companies charge different premium rates for the same car and driver, due to the following:

a) Difference in claim experience
b) Different marketing, administration and profit margins
c) Competition