Understanding auto insurance
It may be your dream car or just your daily driver, but the big question always pops up. Do I need comprehensive insurance? In the Philippines, the law only requires TPL (Third Party Liability) at the very minimum during the LTO annual registration. Comprehensive auto insurance is optional.
With so many vehicles, you’d think the auto insurance industry would be booming but an insurance company executive says they only have 3% penetration in the Philippine market. Common folk say it’s expensive while the aging auto population can’t even be covered because most companies only insure vehicles that are less than 10 years old. Out of the 3.1 million vehicles out there, 1.7 million are more than 10 years old and that’s geriatric by auto standards.
What is auto insurance?
Automobile insurance is simple. It gives the vehicle owner financial protection from car theft, auto damage and bodily harm that may arise from a vehicular accident and/or liability caused by it.
What is TPL?
Third Party Liability covers the liability (expenses you’ll have to shoulder) of the insurer (that’s you) in the event you accidentally injure a third party (pedestrians, other drivers, your passengers that are not members of your household or family and are beyond the 2nd degree of consanguinity). It does NOT however cover liability to any sort of property, whether it’s the vehicle, other vehicles involved in the accident and/or damage to standing properties in the scene of the collision.
What do I get from insurance?
It offers financial security so that on occasions when you find yourself strapped for cash and an unfortunate incident renders your vehicle inoperable, somebody catches your ‘fall’ and that’s your insurance company picking up the tab for the car repairs.
So why insure? You can cover a P1-million peso car for only P20,000, giving you peace of mind that your investment is covered in case of an accident. In addition, one of the most troublesome aspects of getting into a vehicular accident, barring any physical injury, is the paperwork and legwork. Jumping from one gov’t office to another, waiting in line and holding your breath wishing lunch break was only 20 minutes because you still have 20 more documents you need stamped before your car even gets assessed at the ‘casa.’
Standard vehicle insurance covers that and even the hospital bills in case someone was hurt during the accident.
What can you insure and for how much?
All or nothing including the sum of its parts and never individually. You can’t insure just the engine or just the fresh new paint job only. The price of your policy will depend on the value of your car, which is determined by an insurance company rep who checks your vehicle thoroughly. The rep then looks up the book value, computes for depreciation and wear and tear before coming up with the ‘fair market value’ of your vehicle. With the fair market value determined and based on the tariff rate dictated by the Insurance Commission, your premium will then be computed.
Certain insurance companies don’t accept vehicles that are 10 years or older. The reason being is the cost of any repair for your vehicle may be more than its book value. Let’s say your 19-year old car is only worth P150,000, its premium may be just at around P8,000. If you get into an accident and most of it is seriously damaged, in insurance parlance, it is called Total Loss or Total Wreck. The repair cost of your ’94 model will be more than its premium. Newer models, can be repaired and reconditioned for resale and still make financial sense for the company.
Is it really ‘comprehensive’?
Comprehensive auto insurance isn’t as comprehensive as you’d expect. Something as simple as a dent from a falling coconut isn’t covered. It can be covered if you purchase add-ons or request for specific clauses.
Here are some add-ons. Acts of God or Acts of Nature covers damage resulting from events that are not man-made including the coconut. Loss of Use is daily transportation allowance for a limited amount of time while your vehicle is being repaired. Personal Accident pays you a certain amount if you get injured in the act of driving. Medical Reimbursement allows you to reimburse the expenses racked up during treatment and recovery from injury related to the vehicular accident. Riot is a type of add-on that covers protest- or riot-related damages to your vehicle. Upgrade add-on covers upgraded equipment in the car. Then there is also the Free Towing add-on, which some even offer as standard.
Are there various terms of payment?
It just all depends on your arrangement with your insurance company or broker. Some give 60 days, other even 90. Just remember though that if you get into an accident before you fully pay your premium, you’ll have to complete payment before you can collect from your insurance.
What can you claim?
Simple. You can claim coverage for collision parts or parts damaged during an accident. You can claim for mechanical parts like a shock absorber that breaks NOT due to wear and tear. For example, you hit a huge pothole in the middle of the road in the pouring rain and your front left shock absorber simply collapses, you can claim coverage for that. Just remember that when claiming for coverage, a police report with proper dates and times plus a valid driver’s license will come in very handy. They’re not likely to take you at your word.
Choosing your insurance company
When picking which company to insure your car with, there will be three major factors to consider. First is reputation. Ask around and see what others are using and judge by their experiences. Second is Financial Capability. Most insurance companies declare their net worth on their website but some don’t so you’re gonna have to do a little digging. Usually the bigger net worth, the better coverage and service you’ll receive. Lastly, check the stability of the company. Have they been around long enough and have been able to successfully work through a crisis? If they’ve been in the business for a while now, then chances are they’re stable enough to lean on in troubled times.
Check the fine print. In the process of haggling on your part the broker may change certain values of the contract. Check to see if the amount your vehicle is covered for is the same as the third party vehicle’s, that’s usually standard. If your vehicle is insured for P250k, the vehicle you get into an accident with shouldn’t be covered for only Php50k. If the accident was your fault and the damage sustained by both vehicles is worth Php100,000 each, your insurance covers your car but only P50k of the other car’s and guess what? You’re shelling out the extra P50k to complete its repairs. Ouch!
The smart choice
The benefits of getting insurance certainly outnumber the cost. Just don’t forget to do your due diligence because like picking a car, partnering with the right insurance company gives ‘peace of mind’ a whole new meaning.