Why insurance is mandatory for motor vehicles?

Motor vehicle insurance has been made mandatory as Common Law provides right to every citizen to conduct in such a manner so that other persons rights are not infringed while using roads where public has access, to their detriment.

If a vehicle is being used in a public place in a careless and negligent manner causing accidental injuries or death to a Third party using road ( the third party is a person out side the vehicle, some persons on vehicle have been mandatory included like passengers using vehicle for hire or reward; driver, conductor, labour necessarily required on vehicle; owner of goods or his representative travelling on goods carrying vehicle ); the person causing injury or property damage of third party will be legally liable to compensate that third party adequately. 

The Motor Vehicle Act 1988; Sec 146 mandates that no person will drive or cause other person to drive a motor vehicle in a public place or a place where public has access on a private property with out a valid third party insurance cover which in India is a unlimited liability cover; so that the third party in case of disability or his legal heirs in case of death are compensated adequately to the extent of the financial status maintained by the deceased in the society.

Driver, cleaner, conductor, labour on vehicle, owner of good or his representative are not third party technically, as they are using vehicle on their own; but law separately provides compensation for them too.

Motor insurance covers legal liability of Registered owner of vehicle by virtue of ‘Certificate of Insurance’ issued by Insurer in compliance to Motor Vehicle Act 1988.

Currently Motor Insurance also covers “No Fault liability” as a humanitarian good will gesture, adjusting the amount so released as interim payment, in final liability compensation awarded by MACT to mitigate immediate need of deceased’s family.

It is estimated that on an average, in one hour, around 55 road accidents occur in our country. What if the cost is too high to be borne by one person? Who will take the responsibility for the damage?

This is where motor insurance comes into the picture. Those who have a valid insurance policy can approach their insurer. The insurer will pay for the damage. However, no one will cover the people who do not buy insurance. And if they cause an accident, they will have to bear the cost from their pocket and their own expenses.

Apart from paying for the damage and medical treatments for injuries, the drivers at fault could face serious legal liabilities. This is exactly why it is a law in India to buy Motor Insurance. Under Chapter 11 (Section 145 to 164) of The Motor Vehicles Act, 1988, it is compulsory to buy at least a Third-party Motor Insurance Policy in India.

Advantages of Buying Motor Insurance

There are two types of Motor insurance policies, Third-party Motor Insurance and Comprehensive Motor Insurance. As mentioned earlier, a third-party policy is compulsory for every motor owner. However, it does not provide adequate coverage to the owners themselves.

Coverage

Depending on the type of coverage, you can get a vehicle insurance online policy which will insure you for damages caused to the third-party and for own damage. Own damage includes cost of treating injuries of owner-driver and cost of repairing damages.

No Claim Bonus

During an active policy year if no claim has been raised, you will be entitled for a No Claim Bonus i.e. a discount on the amount of motor insurance premium.

Peace of Mind

Motor insurance offers complete peace of mind. One does not have to worry about a sudden financial crunch which may occur if the motor is stolen or damaged.

Hope that helps!!

What are some good insurance companies in USA?

What are some good insurance companies in USA?

In practical terms, there neither is nor can there be a "best" auto insurance company. But I WILL make a recommendation at the end of this response.

Part of the problem is deciding just what "best" means. Cheapest? Pay claims quickly? Strong financials? Least number of policyholder complaints? Or what? Whatever your criteria, the answer tells you what company is "best" for YOU.

But here some points to ponder:

One of the most important points is whether the company uses independent agents, or deals directly with the policyholder. 

The problem with "direct writers" is that their agents (called "captive" agents in the biz) are basically powerless to assist the policyholder when a dispute arises. 

The agent may make a great show of "being on your side," but the cookie just doesn't crumble that way. 

In fact, the best captive agents would rather be independent agents, IF they can find an agency whose skills and values match their own. The independent agent has a little more muscle with the company. 

If a company tightens up on underwriting or claims service, the independent agent can "move the book." 

This means switching (with the policyholder's approval, of course) ALL the insureds of one company to another company. On more than one occasion, this is exactly what I have done.

Whether the company is a direct writer, or relies on independents, the actual agent who handles your account is important. 

The agent for a direct writer generally has less incentive to be an expert on the subject, because the only thing they have to offer is what their company provides. 

The independent agent, by contrast, must be savvy about what a variety of companies offer and therefore has an incentive to understand the very subject of insurance, itself. 

You can, when talking with an agent of either type, discern something about their expertise, in the same way you develop an impression of anyone upon whom you rely for advice and service.

Don't be impressed by price. The insurance business -especially personal lines (auto, homeowner) is somewhat of a game, in which a company will seek to build a book quickly by offering prices they already know can't be sustained over time. Take Geico (please). They say you can save "up to 15%."

 But, compared to what? And you have already seen the advertising from companies who say something like, "of all those who switched to Auto Heaven Insurance, the average savings was over $350.00." 

But of course! We're only measuring those who switched. But what about those who requested a quote and did NOT switch? Give us that number.

Then there is Progressive, who seems fixated on the idea that insurance comes in cereal boxes sold by a comedian with greasy hair. They'll show you pricing from other companies, even if the premiums are LOWER.

 You BET they will, and that's because Progressive, like all other carriers, knows what kind of customers they want, and are happy to sluff off the ones they don't want to someone else. So, if they can't MAKE money, then at least they can make someone else LOSE money.

Price may also vary with coverage. Therefore it is important to be sure that quotes are "apples to apples." What are the apples? Just 3 things, basically: liability (usually required by law), physical damage to the vehicle (required by the lender if the car is financed) and coverage required by regulation (usually "no-fault" and "uninsured motorists"). 

Coverage is one thing, the AMOUNT of coverage is another. So, when soliciting quotes, be prepared to tell the agent EXACTLY what you want. But first, determine what it really IS that you want.

 In my opinion, the legally required minimums for liability insurance are way too low, thus asking for a quote on those limits makes no sense. 

Again, it is just my opinion, but the limit for liability insurance should be not less than the minimum required by the insurance company to support an "umbrella liability", policy, which adds a million (or much more) to the "underlying" coverage in the auto (and homeowners or renters) coverage.

 That number is probably 300 to 500 thousand per accident. 

Once you've determined the prudent limits, then ask for quotes based on those limits - certainly NOT on the legally required minimums.

This all presumes you actually care about what happens when you have a claim; if you don't care, then simply start dialing for dollars, to find the cheapest deal THIS year - and do the same with every renewal.

Otherwise, a perfectly valid question to ask the agent is, "Over the past 3 or 4 years, how much have your premiums changed, and do you have any reason at all to think the price for your coverage will increase dramatically over the next 2 or 3 years?" See how they handle those questions; look for the "tells."

Here is what an "honest" answer will sound like: "The company I have recommended for you has increased its premiums at an average of roughly 5 to 8% over the past 3 or 4 years. 

This reflects the market cost of litigation and settlements arising from liability claims, and the cost of auto repairs. 

Both of these are rising at more than the over-all rate of inflation, but the increases are reasonably predictable. 

I have no reason to think this will change in the near future. I could be wrong, of course, but that's what the record has shown, so far."

Here is what a dishonest answer will sound like: "We didn't get to be the fastest growing (most popular, etc.) insurance company by charging high prices. 

We deliver great product at a reasonable price and our reputation and number of policy holders are the evidence that we've been doing right by our customers."

With the above 2 examples in mind, see which way the needle moves when you chat with an agent.

So, who would I recommend for auto insurance? Although I represented many dozens of companies in my insurance career of nearly 25 years, I can't recommend any of them as "the best." The honor lies with someone else, but there is a catch. The company is USAA (usaa.com). 

I have encountered them numerous times in my career, as a competitor and as the organization which paid my damage claims against their policyholder. 

In every instance, I found them to be professional, expert, courteous and never contentious. The catch? You've got to be "military," or related to someone who is (or was). 

Their pricing is at least reasonable, and perhaps better. Your mileage will vary, of course, but if you have been or are in the armed services, or are an immediate family member of someone who is, or was, check them out.

Hope that helps.

How do insurance companies make money?

No one has given you a full answer but Mr. Enright is the closest thus far. People seem to be focused on premium vs. claims; however, this is pmost definitely NOT how insurance companies make money. 

Most insurers try to price their policies such that the total premiums collected each year are equal to the total amount of claims paid + expenses (we call this the combined ratio - claims+expenses:premium). 

A combined ratio of 1 is seen as ideal because it means they are not over or under pricing their policies; meaning that they are underwriting the risks they want as pricing models are designed to attract what a company identifies as their target market. 

With regard to automobile insurance, most insurers actually run a loss on premiums, normally paying just over a dollar for every dollar of premium (combined ratio >1); whereas, they normally run just under a 1 ratio on property insurance.

 Ultimately, very little, if any profit is made through underwriting (premiums) alone; rather, the reason for writing policies and collecting premiums is to build an investment pool.
 
When an insurer collects premiums they put that money into an investment pool. 

They use the premiums collected to fund investments (generally in guaranteed or low risk securities due to regulatory restrictions). 

When a claim is made money is then taken from that pool and put into a cash account to pay the claim once the adjustment of it is completed. 

Where insurers make their money is on the interest and return on investment earned from those premium dollars while they are in the investment pool. 

The ideal is to have enough premium coming in to keep the investment pool fully funded but the profit itself comes from the return on investment rather than a surplus in the premiums charged vs. claims and expenses paid.

 Let's look at State Farm Mutual for an example.... in 2011 State Farm collected $32,640,000,000 in premiums; they paid $22,794,000,000 in claims, $4,311,000,000 in claims expenses, $7,527,000,000 in administrative/service expenses; resulting in a LOSS of $1,993,000,000 on underwriting; however, they had investment income of $2.,901,000,000.

 So while they actually lost $1.9 Billion on premiums vs. claims and expenses (combined ratio of 1.06) they made $2.9 Billion on investement income. 

As you can see, insurers don't make money through premiums but through investment.