Just what exactly is motor insurance? It's something that all motorists should have but not something that most actually understand.

In its most basic essence, motor insurance is a form of risk management, where a motorist joins of other motorists to each take a share in the risks that all of them must face as vehicle owners.

The risks may involve damage to your own vehicle, damage to another person's vehicle, damage to property, injury to another person, or the complete loss of your vehicle, for example through accidental damage or theft.

All of these situations can have serious monetary implications for any one individual, though less so if everyone shares a portion of that responsibility.

Simply put, it is like a thousand people paying one ringgit each as opposed to one person paying one thousand ringgit alone.

Though it is possible that you and your vehicle may come into a situation that exposes you to financial loss, it is not a certainty, and this potential loss is exactly what insurance protects you against.

Some drivers may make multiple claims in their lifetime but some, never at all. It is on this law of averages that insurance operates.

Since there are many situations that could lead to loss or damage, there are also different types of insurance to provide adequate coverage for the different situations.

The most common type of coverage is the one that most motorists will be familiar with - the comprehensive vehicle coverage. As its name suggests, it is the form of insurance that provides the widest range of protection against potentially ruinous situations.

This form of insurance typically covers damage to another person's vehicle through your fault; the loss of your vehicle through damage, fire or theft; bodily injury of a person or persons injured by your vehicle; and the repair of your vehicle due to collision damage.

The next form of vehicle insurance is known as the third party insurance. As with the comprehensive policy, this policy will indemnify you from financial liability for the repair of another vehicle damaged by your car in an accident as well as physical injury to another.

Where it differs from the earlier policy is that there is no coverage for your vehicle from loss or damage; you are essentially your own insurer when it comes to your own car.

Besides vehicle coverage, there is also legal liability insurance that can be purchased to extend your protection in the operation of your vehicle.

Comprehensive coverage protects you from claims by the driver and passengers of the other vehicle involved in an accident, but does not absolve you from legal liability to your passengers. Though not common in Malaysia, a passenger that is injured in an accident may seek legal recourse against the person operating the vehicle, so if you are in the habit of ferrying litigation-prone passengers, it might be something you will want to consider.

Legal liability to passenger coverage is also required if you intend to operate your vehicle in Singapore.

For extended coverage, you may also opt for windscreen and accessories insurance. These are in essence a separate insurance or rider that is tacked on to your vehicle insurance and operate independently to it.

These are calculated at a fixed rate of 15 per cent of insured value of the windscreen or accessories and allow you to make a claim for these items without affecting your vehicle coverage and benefits.

An increasingly popular option in Malaysia is flood damage protection. Many people mistakenly assume that this is covered under comprehensive policies when it is not the case. Charged at 0.5 per cent of the insured sum, this additional coverage allows for the repair and restoration of vehicles that are damaged as a result of flooding.

One of the most important aspects that vehicle insurance does not cover is actually personal injury to you as the driver.

Though it will cover you as far as your vehicle is concerned, there is no protection against injury to yourself.