Car Insurance Terminologies You Need To Know

If you have been following insurance Info then you know I am an advocate for having and maximizing your car insurance, particularly if you are driving in Lagos. We have talked about third party liability insurance, uninsured insurance and comprehensive insurance. We would like to bring you up to speed on some car insurance terminologies, to keep you well informed.

Insurance Premium

Insurance premium is the amount you would pay to the insurance company to insure your car. For instance, if you buy a car for N1 million, the insurance company could charge you 4% to insure the vehicle. So, you would pay N40,000 (4/100 * 1,000,000) a year to insure your car. That N40,000 is the insurance premium. The percentage they charge is negotiable especially if you are insuring more than one car. So, make sure to haggle with your insurance agent.

Insurance claim

An insurance claim is a request for compensation under the terms of an insurance policy. However, the insurance company will only cover the cost based on your policy.

Depreciation

Depreciation is “a reduction in the value of an asset over time, due in particular to wear and tear”. As such, depreciation reduces the amount of money you will receive when you make insurance claims.

After you submit an insurance claim, the insurance company will take depreciation into account before compensating you. Depreciation within the first 6 months are lower than depreciation after the first 6 months.

For example, on the 1st of January you insured your car for N1 million and your premium is N40,000. Then on 25^th of June 2019, the car was involved in accident. Then the insurance company would work with your body shop to determine the cost to repair the car. This is done to know if the damage exceeds 65% of the car value. If it does, the car would be declared a total loss.

In that case, the insurance company would deduct 5% (N50,000) for depreciation and pay you N950,000.00 . That is because the accident occurred within the first 6 months. Had the accident happened on the 1^st of July or thereafter, the depreciation would be 10% (N100,000). Meaning they would have paid you N900,000. The insurance company gets to keep the salvaged (damaged) vehicle.

Excess fee

In other to ensure people exercise due care in handling their vehicles, the insurance company would charge an excess fee for any claim made. Most insurance companies charge 10% of the value of the car for any claim before they cover the rest of the costs. This charge is called excess in Nigeria, in the US it is called deductible.

So back to our example, we bought a car for N1,000,000 then your excess is 10% of the value of your car which is N100,000.00. If you get into an accident and the cost to repair your car is N50,000, you would bear the cost of repairing the car yourself as it is less than N100,000.

However, if the cost to repair was N250,000 you would pay N100,000 and the insurance company would pay N150,000 to repair the car. There is a way around this, which is Excess buy back.

Excess buy back

Excess buy back essentially means that you are buying the excess or deductible fee upfront . For instance, you have a car worth N1,000,000.00 and you want to insure it. The insurance company would charge 4% premium charge which amount to N40,000.00 a year.

If you then decide you want to buy the excess charge back, you would be charged another 1%, making a total of 5% (N50,000.00) for the premium and excess buy back. So using our last examples, if the damage costs N50,000.00 to repair, the insurance company will pay the N50,000.00 and you pay nothing. Presuming that the damage costs N250,000.00 to repay, the insurance company would pay N250,000.00 and you would pay nothing. If the damage costs N650,000.00(65% of the value of the car), the insurance company would pay N1,000,000.00 – Depreciation value (N50,000 or N100,000) and take over your car from you.

Therefore, if you must have comprehensive insurance, then you must have excess buy back. Not having excess buy back will cost you money in the long run!

Third party documentation

When someone hits your car, you are supposed to use the person’s third party liability insurance to cover the cost of your repair even if you have comprehensive insurance. You are required to get a third party documentation from the person that hit your car. Most people are ignorant about how the third party insurance works so they don’t bother to get this third party documentation.

I went over my insurance policy document and it stated that if a third party causes an accident that damages your vehicle and you are unable to provide the details/documents of the offending third party even when the circumstances show you should be able to, then 25% of the compensation due to you will be deducted as a penalty.

This is because when you provide such details/documents, your insurance company is able to follow up with such parties and recover the cost of the damage from them and/or their insurance company.

The third party details you need to get are

• Police report on the accident and or a written undertaking from the negligent 3rd party
• Photographs of the vehicles with registration details preferably taken at the accident scene
• Phone number & address of negligent third party
• copies of the 3rd party’s vehicle documents and valid insurance certificate(where available).

In my experience thus far, the insurance company is yet to enforce this during claims, but it is better to be safe than sorry. The next time someone hits your car and starts begging, provided you have full coverage, just tell him/her to write an undertaking accepting he/she did the damage. Then take pictures of the car, and the aforementioned documents. Then, call your insurance at your convenience and file a claim.

Do you have questions about car insurance or need guidance on how to go about making successful insurance claims? Do you have any question you would like us to answer? Send them to Insurance Info and please include the state where you live (no full names will be used).

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