Should you buy the cheapest car insurance?
Mention car insurance and most people dash to cheap car insurance site prudentplus car insurance to search for the very cheapesat quote. Is this really what we should do though?
The whole purpose of insurance is to transfer risk. It grew out of trading as far back as before history. Merchants would get together and agree to indemnify each other in the event of loss; this meant that instead of a particular person losing everything if a shipment of goods was destroyed or stolen the burden would be carried by numerous other people and all of them would still be able to carry on in business.
Car insurance works in a similar way; if a motorist had a serious accident which resulted in damage to other people's property or even death or injuries the cost of making good would very easily bankrupt many people. By taking out car insurance this driver can be confident that the cost of any claims that result from an accident will be met by the insurance company, out of the premiums that many other people have already contributed.
It is very important to remember this; we do not only insure our cars in order to comply with the law, we do so to protect ourselves against possibly ruinous financial disaster.
In the early days of insurance there were no real middlemen; everyone covered by an insurance agreement contributed to the pot and any surpluses were shared out eventually. This was fine back in the old days of the coffeehouses where a bunch of merchants would get together and make private agreements but this could only happen on a fairly small scale. If there were dozens, hundreds or even thousands of potential claimants, all of whom contributed towards a common fund, it was essential that it was properly organised on a large-scale.
This meant that serious investigations had to be made into the actual risks involved. If for instance the insurance was to cover goods in transit in sailing ships, would it be fair for the merchants who opted for cheaper transport in a rather battered ship that may not be seaworthy, to pay the same premium as one who only dealt with the safest possible transporters? Should someone with a record of claims not pay more than others who went year after year without losses? Clearly it was essential that scientific ways of working out risk were put together so that a fair share out of the burden could be calculated.
This is how car insurance works. Insurance companies take a look at particular applicants and not only work out the risk of them making a claim, but also try to estimate just how big that claim is likely to be. This is why young drivers pay more than experience ones because they are more likely to have an accident; and why those who own big fast cars pay more than those with small slow ones because when they do have an accident the damage is likely to be greater
We may all believe that it is very unfair for motorists to have to pay insurance at all let alone the eye watering sums that young drivers have to fork out; but the fact remains that without it an awful lot of motorists may lose everything they own; their savings, their cars and even their homes if they have a momentary lapse of concentration which results in an accident which they are to blame for. Perhaps car insurance is not such a bad thing after all.