Many people taking out car insurance are usually ignorant of the fact that in case of a claim, they should not expect to make a profit from the compensation they receive from the auto insurers.

 

For example if your 5-year old car is completely damaged, it is unrealistic to expect the insurance company to replace it with a brand new vehicle. Insurance is not about the policyholder making a profit from their misfortune. This is a very important aspect of car insurance that needs to be understood well because it will save you a lot of grief and disappointment in the event of an accident.

The terms betterment and depreciation come into play. What this means is that despite the premium you have been faithfully paying, in the event that your car is damaged beyond repair and needs to be replaced, then a car insurance company has to take into account the issue of depreciation. In other words the wear and tear of the car since it was first insured. What this means is that you as the owner of the car will have to pay up the difference, in the event that your vehicle is being replaced with a brand new one by the insurer.

Many people may find this insurance principal difficult to understand or take in. However the truth is that even when you take out any insurance and not just car insurance, topmost on your mind will not be profit but rather protection and compensation in the case of misfortune. The idea is to restore things to exactly what they were before your misfortune. Not give you a windfall after an accident. If this were the case then chances are that many would be very tempted to "prompt accidents".

It is therefore unrealistic to expect the insurance company to give you a brand new vehicle to replace your 5 year old ramshackle. But what you should realistically expect is compensation from your insurance that takes into account depreciation so that you are required to make a small contribution to getting your new car.