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Buying a Car Insurance Policy
Protect yourself against loss due to road accidents and car theft. Here’s a primer on auto insurance
By Arlyn W. Cheng, LUTCF, CIS
Do you know that road accidents are now the fourth leading cause of death in the country? Based on the 2006 report of the Philippine National Police, an average of 41 traffic accidents occur in a day due to driver errors, mechanical defects, over speeding, cell phone use while driving , driving under the influence of alcohol and drugs, etc. These traffic accidents resulted in 674 fatalities, 3,767 injuries and 10,623 property damages. In recent years, there has been an alarming increase in the number of traffic accidents. For instance, the June 2008 data alone showed 1,648 incidents.
So what does it indicate to all of us? For car owners, we are all exposed to road hazards. No matter how careful you are in driving, if the driver behind you is undisciplined or sleepy, you could still be in trouble. An accidental collision involves property damage and possible bodily injuries. Worst, it could be fatal. A lawsuit can be financially and emotionally draining aside from time consumed in attending court hearings. Another possibility is car theft, which is rampant in our country. Hence car insurance coverage becomes a necessity to protect us against potential financial loss. Below is a guide in choosing the right coverage:
WHAT IS MOTOR CAR INSURANCE?
Motor car insurance is a contract whereby an insurer undertakes to indemnify the insured against loss, damage and/or liability that may result, due to an accident arising from the use of a motor vehicle in exchange for a premium.
WHAT ARE THE MOST IMPORTANT CONSIDERATIONS IN CHOOSING AN INSURANCE COMPANY?
Select a company that is financially sound since you buy insurance to protect you financially. You may view the ranking of authorized non-life insurance companies at the Web site of the Insurance Commission at www.insurance.gov.ph. Their ranking provides us a clue to their financial capability to settle claims promptly. Another basis is to look at their ratings from independent rating agencies.
Deal only with reputable providers who have a track record of attending fairly, efficiently, and as quickly as possible to their clientele. It is best to deal with licensed and ethical non-life insurance professionals as they are mostly affiliated to reputable firms and have been trained to give you proper advice on the right coverage to buy.
WHAT IS THE COVERAGE AVAILABLE IN A COMPREHENSIVE MOTOR CAR INSURANCE?
The typical policy has six components. Here’s a primer from Malayan Insurance:
- COMPULSORY THIRD PARTY LIABILITY (CTPL) – The state (PD 612, Chapter VI) requires that before the registration and operation of any motor vehicle, it must be covered against liability for death and bodily injury of third parties. A Schedule of Indemnities for Bodily Injury &/or Death is contained in Sec I/II of a standard motor car policy.
- OWN DAMAGE & THEFT (OD/Theft) – This protects against loss (theft) or accidental damage to the insured’s own vehicle.
- VOLUNTARY THIRD PARTY LIABILITY – Excess Bodily Injury (VTPL-EBI) – This is the second layer to the CTPL coverage which provides additional insurance coverage (in excess of the P100,000 required by law). If you are found legally responsible for bills beyond the limits, you might find yourself in a situation where you have more out-of-pocket and in the long run, the cost could wipe you out. An example is when you run over a man who becomes permanently disabled.
- VOLUNTARY THIRD PARTY LIABILITY – Property Damage (VTPL-PD) – This is additional coverage against liability due to the insured vehicle’s accidentally damaging a third party property. What if you had an accidental collision with luxury cars like BMW or Porsche, will your coverage be enough to cover the cost of damage?
- EXTENDED PERILS COVER – For an additional premium, these perils may be added:
- Acts of God – flood, typhoon, hurricane, volcanic eruption, earthquake (FTHVEE)
- Strike, Riot, Civil Commotion (SRCC)
- PERSONAL ACCIDENT – This covers against losses due to the accidental death or disablement and/or medical expenses of the vehicle occupants who are riding in the insured vehicle involved in an accident.
For an additional premium, you may opt for a Loss Of Use coverage (if offered by your provider) which provides transport allowance while your car is undergoing repair due to a motorcar claim.
WHAT IS THE SHARE OF THE INSURED IN THE EXPENSES FOR INCURRED LOSS/DAMAGE – THE SUBJECT OF SETTLEMENT OF A MOTORCAR CLAIM?
DEDUCTIBLE – Deductibles represent the amount of money you pay before your insurance policy kicks in. The policy, be it a Private Vehicle (PV) Policy or Commercial Vehicle (CV) Policy, provides that the insured must share in the loss/damage – the expenses of the repair/reinstatement of the vehicle, equal to 1% of the sum insured for CV, and 0.5% for PV; Minimum deductible amount is P3,000 for CV and P2,000 for PV. This must be paid by the insured before the vehicle is released from the repair shop or by the insurance company.
DEPRECIATION – Depreciation is a decline in value caused by the effects of age, wear and tear, use, weather, and other similar factors. When a motorcar part is used to replace a damaged part, the insured has to pay the difference (amount) between the value of the part at the time the car has been purchased and the value of the part at the time it is replaced.
WILL THE INSURANCE COMPANY PROVIDE LEGAL ASSISTANCE IF THE DRIVER OF THE INSURED VEHICLE IS SUED BY THE OTHER PARTY AS A RESULT OF A CAR ACCIDENT?
If you have comprehensive cover, it can shield you from legal liability to third party. Having car insurance does not stop anyone from suing you. But it does provide the assurance that if you are sued as a result of an auto accident, the financial and legal resources of the insurance company will assist you in defending against the suit and paying any resulting damages.
In summary, buying an adequate coverage will take away the worry and hassles when a road mishap occurs. Just like a spare tire, we carry it just in case. Drive with confidence and peace of mind. An insurance coverage can be a vital financial safety net!
Arlyn W. Cheng, LUTCF, CIS is currently affiliated with leading companies that provide various financial services in life insurance, non-life insurance, mutual funds, pre-need, and HMO. A business management and psychology graduate of De La Salle University, she has a passion for analyzing how a person’s lifestyle is affected by the way he manages his personal finances. After taking up the RFP course, she became a staunch advocate for financial literacy. For questions or comments, kindly send your e-mail to firstname.lastname@example.org.
HOW DO WE SAVE ON COST OF INSURANCE?
Tip #1. Before you buy a new or used car, check into the cost of insurance. If you do not have a preferred agent, you can obtain a quotation from several providers directly and compare. Generally, you pay more for higher coverage depending on the type of vehicle.
Tip #2. You can ask for higher deductibles. Consider your insurance as a backstop against major losses, not a way to pay for minor scratches and damages. By requesting for higher deductibles, you can lower your cost substantially. But make sure you have adequate savings to pay the deductible amount if you have an accident.
Tip #3. Consider dropping or reducing comprehensive coverage on older cars. Depending on the age of the car, it may not be cost-effective considering that you have to pay higher depreciation costs in case of a claim.
Tip #4. Inquire about discounts. There may be discounts such as No Claim Bonus from your provider if there had been no claims filed in the previous year. There are also fleet rating discounts for the insured with 10 or more vehicles under the same owner.
Tip#5. Look for add-ons. Some insurance companies provide free membership road assistance program like free towing, vehicle breakdown minor repair service, ambulance, alternative transport, etc. if you buy from them comprehensive car insurance. If your provider doesn’t have this service, you can join auto clubs like AAP (Automobile Association of the Philippines) to assist you in case of vehicle breakdown on the road.
Tip #6. Understand the coverage you are buying. Review the provisions of the contract, limits of coverage, etc. Clarify from your agent/broker and what benefits you can possibly add or delete.