Essential Car Insurance Terms You Need to Know
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Car insurance has become an essential part of the financial protection system, both at the individual and global levels. Many people purchase insurance policies to protect their vehicles from unexpected risks, such as accidents, theft, or natural disasters.
However, many vehicle owners are still confused by the terminology used in the insurance world. This article will explain the main car insurance terms simply and professionally to be easily understood by anyone.
1. Premium
The Premium is the amount of money paid by the policyholder to the insurance company within a certain period, usually monthly or annually.
The premium is the cost for the protection provided. The premium amount is influenced by various factors such as the type of car, the age of the vehicle, the region of residence, and the owner's driving record.
The higher the risk borne by the insurance company, the higher the premium charged.
2. Insurance Policy
The Insurance Policy is an official document containing the agreement between the policyholder and the insurance company. It contains complete information regarding the rights and obligations of both parties, including coverage scope, exclusions, premium amount, and the insurance's validity period.
The policy serves as valid legal proof. Therefore, every policyholder should read and understand its contents carefully before signing the agreement.
3. Insured
The Insured is the party receiving protection from the insurance policy. In the context of car insurance, the insured is usually the vehicle owner listed in the official documents.
However, in some cases, the insured may differ from the policyholder, for example, if someone purchases insurance for a family member's vehicle.
4. Insurance Claim
A Claim is a formal request submitted by the policyholder to the insurance company to receive compensation for losses that have occurred, in accordance with the policy's terms.
The claim process usually involves filling out forms, attaching evidence of the incident, and awaiting the verification results from the insurer. The claim submitted must align with the type of protection stated in the policy to be approved.
5. Types of Coverage: All Risk and TLO
In car insurance, there are two main types of coverage recognized globally:
a. All Risk (Comprehensive Insurance)
This type of coverage includes almost all risks, covering both minor and major damages. This insurance is often called comprehensive insurance because it provides thorough protection against various potential losses.
b. Total Loss Only (TLO)
TLO provides protection only if the vehicle suffers severe damage (generally more than 75% of the vehicle's value) or is a total loss due to theft. The premium for TLO is usually lower than All Risk.
The choice between All Risk and TLO should be adjusted to the vehicle's condition and the owner's financial capability.
6. Deductible (Own Risk)
The Deductible is the amount of money the policyholder must pay each time a claim is filed.
For example, if the repair cost is 10 million rupiah and the set deductible is 500 thousand, the policyholder pays 500 thousand, and the rest is covered by the insurance company.
The purpose of the deductible is for the policyholder to maintain responsibility for the insured vehicle and not submit minor claims indiscriminately.
7. Underwriting
Underwriting is the risk assessment process carried out by the insurance company before approving a policy application.
In this stage, the company will evaluate various factors such as the vehicle's age, market value, usage history, and the driver's profile.
The result of the underwriting process will determine the premium amount and the scope of coverage appropriate to be given to the applicant.
8. Surveyor (Claim Assessor)
A Surveyor is an officer assigned to inspect the vehicle's condition before or after a loss occurs.
During a claim, the surveyor will conduct an inspection, take photos, and prepare a report as the basis for the insurance company to decide whether the claim will be approved or rejected.
The role of the surveyor is crucial to ensure the validity of every claim submitted.
9. Third Party
This term refers to another party involved in an accident besides the policyholder and the insurance company.
In some policies, there is special protection called Third Party Liability (TPL), which is compensation coverage for third parties harmed by the actions of the insured.
This coverage is often mandatory in many countries as it is considered to protect the public interest.
10. Add-On (Extension of Coverage)
An Add-on is additional protection that can be purchased outside the main scope of the policy.
Examples include guarantees against the risk of flooding, natural disasters, riots, legal liability to passengers, or damage due to earthquakes.
Policyholders can choose add-ons according to the risks most relevant to the environment where the vehicle is used.
11. No Claim Bonus (NCB)
A No Claim Bonus (NCB) is a form of reward for policyholders who do not file a claim during a certain period.
Usually, the NCB is given as a premium discount upon renewal in the following year.
The longer a person does not file a claim, the greater the discount received.
This policy aims to encourage cautious and responsible driving behavior.
12. Renewal
Car insurance policies generally have a one-year validity period. After the term expires, the policyholder must Renew the coverage to keep it active.
A delay in renewing can result in a period without protection (lapse of coverage).
Therefore, it is important to pay attention to the due date and update the policy on time.
13. Exclusion
Exclusions are conditions or events that are not covered by the insurance policy.
For example, damage resulting from racing, criminal acts, or unauthorized vehicle modifications are usually included in the exclusion list.
Reading the exclusion section is very important so that policyholders do not misunderstand when a claim is rejected.
14. Endorsement
An Endorsement is a change or addition to the content of the policy made after the policy is issued.
These changes can include a change of address, vehicle owner, or an extension of coverage.
All changes must be officially approved and recorded by the insurance company to remain legally valid.
🧠 FAQ
Q: Is car insurance mandatory?
A: In some countries, vehicle insurance (especially third-party liability) is a legal obligation. However, comprehensive protection remains a personal choice.
Q: Can the premium be negotiated?
A: Some insurance companies offer flexibility based on risk profile and claim history. However, generally, the premium is set according to the risk assessment results.
Q: Does insurance apply to electric cars?
A: Yes. Many companies now offer special products for electric vehicles, with adjustments to protection for components like batteries and electrical systems.
Conclusion
Understanding car insurance terms is the first step toward becoming a smart and responsible vehicle owner.
By knowing the meaning of each term, policyholders can make better decisions, whether in choosing a product, managing risks, or submitting a claim.
Insurance is not just about financial protection; it is also about peace of mind and certainty while driving.
Disclaimer
This article is prepared for general informational purposes.
The content of the article is not intended as legal advice or financial recommendation.
Every insurance company has different terms and conditions, so readers are advised to always read the policy thoroughly and consult with the insurance provider before making a decision.
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