Car insurance basics – how motor policies work
Most people buy all forms of insurance, including car insurance on an emotional rather than a rational basis. What this means in reality is that people pay a company a sum of money, and in return expect someone to come along and look after them or put things right if and when things go wrong.
This mindset meets a couple of the most basic human need there are and is an attitude that has been fostered by insurance companies and the insurance industry since the time of Edward Lloyd. There is some sense in this approach but also a real danger.
The danger is that people don't realize that an insurance policy is in fact a legal contract between two parties with very clear obligations and commitments on both sides. This is especially important in car and auto insurance for a couple of reasons.
Firstly is that some form of car insurance is mandatory ie required by law in virtually every state and country in the world. The type and level of cover required by law may differ, but there will be some form of legal requirement for the car driver to have some form of third party liability cover in respect of any damage they may cause or be held liable to have cause and be held responsible for to another person and or their property.
That is the other reason why the realization this is a legal contract matters so much -because the real risk comes from the need to pay third damages which can be significant, and if not covered by an insurance policy would be financially crippling for most people.
It is crucial to realize that the information you provide to an insurance company by way of a proposal form either electronic or paper will form the basis of that contract. The information required will usually be around things like name , address, occupation, driving history, age, type of vehicle, type of cover required etc.
Aside from giving truthful answers to all the questions it is also the responsibility of the person requiring insurance to disclose anything that could be considered a material fact, that is something that could affect the underwriters judgement about the nature of the risk involved.
Failure to do so could lead the underwriters to void the contract and put you in the position of having to take legal action against them to enforce the contract if you felt it appropriate, something that is normally financially prohibitive.
People often give misleading information on the proposal form, often unintentionally, without realizing the risk they are running.
The information given by the person wanting insurance allows the underwriter to assess the facts involved, decide on the nature of the risk and how much they want to charge for the insurance. That is their side of the contract. Your side is whether or not you accept the amount involved and any conditions or restraints they may put on the policy. That is your side of the contract.

Author's Bio: 

The author is a freelance writer who specializes in insurance having spent many years in the insurance industry, working at Lloyd's of London, in particular he writes about car and auto insurance explaining what car insurance is for and the related area of car insurance.