MOTOR INSURANCE — MEANING, TYPES AND EXCLUSIONS

Motor insurance is defined as a contract between an insurer and an insured in which the insurer agrees to protect the insured against vehicle loss or damage, as well as harm to third-party property.

It is a contract in which the insurer assumes the risk that the owner or operator will face as a result of property or personal damage caused by an accident.

Motor insurance is usually purchased for cars, trucks, lorries and other vehicles.

It is mostly used to protect against losses and liability arising from a traffic accident

Motor insurance started in 1897 when the world's first automobile insurance policy was issued by Travellers to a man named Gilbert Loomis, a resident of Dayton, Ohio

However, the Motor Vehicle Third Party Insurance Act of 1945 set the framework for what is today known as motor insurance in Nigeria.

Types of motor insurance

1. Third-party insurance: This is the most basic type of auto insurance.

It is the cheapest type of automobile insurance. Third-party insurance covers bodily injury or property damage to a third party.

Any person who is not a party to the insurance contract is referred to as a third party

Third-party insurance protects the insured from third-party legal liability for both property damage and bodily harm or death arising from motor accidents.

Third-party insurance serves as the minimum amount of insurance required by law as specified in the Vehicle Third Party Insurance Act of 1945.

The 1945 Act required all vehicle owners and users in Nigeria to obtain third Party Insurance coverage before driving or putting their vehicles on the road. Failure to get third-party insurance is a legal offence that will result in penalties.

Third-party insurance does not cover losses suffered by the insurer himself. It only compensates third parties for losses incurred as a result of the insured's use of his or her vehicle.

It protects the insured against third-party property damage as well as death or physical injury to a third-party caused by the usage of the insured's vehicle

2. Third-party, fire and theft: This cover includes loss or damage resulting from fire or theft, but solely to the covered vehicle, in addition to the full third-party coverage.

Third-party, fire, and theft insurance extends the coverage provided by third-party motor insurance by covering your vehicle in the event of fire, theft, or attempted theft.

3. Comprehensive motor insurance: As its name seems to suggest, this type of motor insurance policy provides a very wide range of coverage.

It protects the insured automobiles against loss or damage caused by fire, theft, vandalism, accidental damage or collision.

Comprehensive insurance also covers third-party legal liability for death, bodily injury, or property damage caused by the use of the insured vehicle.

Comprehensive motor insurance can be categorized into:

A. Private car: This is used for personal purposes. 

That is, insurance is provided for the use of cars for domestic, social and pleasure purposes.

Small cars used for business are frequently covered by private insurance.

Private insurance premiums are calculated based on the geographical area of use or the car's value.

B. Commercial vehicles: This provide coverage for people involved in the transportation of goods and services as well as those engaging in other commercial activities.

Commercial vehicle insurance is usually provided to taxis, vehicles and buses use in the transportation of goods and passengers for commercial purposes.

Accordingly, commercial vehicle insurance can be classified into:

  • Passenger-carrying commercial vehicle: Here, the premium is based on the vehicle's carrying capacity (number of passengers) and the value of the vehicle.

  • Goods carrying commercial vehicles: In this case, the premium is calculated on carrying capacity(gross vehicle weight) and the value of the vehicle.   

What is Not Covered By The Motor Insurance Contract

Generally, a motor insurance policy has the following exclusions:

1. Normal ageing, wear and tear of the vehicle

2. Loss as a result of depreciation

3. Damage to tyres and tubes that aren't caused by an accident

4. Damages to the car caused by a person not having a valid driver's license

5. Car damage caused by a driver who is under the influence of drugs or alcohol.

6. Use of vehicle in a way that violates the terms and conditions of the insurance contract.

7. War-related losses or damages

8. Mechanical or electrical breakdown.

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