10 Tips on Saving Money on Car Insurance
By Arlyn W. Cheng, LUTCF,CIS
Buying car insurance coverage is not as simple as selecting a commodity from a shelf. Studies have shown that people don’t shop around for insurance in the same way they shop for a new car. Whereas everybody is always excited to go through all the nitty-gritty of selecting the make, model, color, features, and accessories of the car, including its price, people rarely understand the value of paying the premiums for comprehensive insurance coverage for their car.
Accidents can happen to anyone. According to the Department of Health, road accidents are the 4th leading cause of death in the country today. If an unfortunate car accident claims the life of a person, it will result to emotional trauma and a financial headache for everyone involved.
There are invariably out-of-pocket expenses to pay for medical costs, burial, or property damages. This financial burden can be cushioned by understanding the insurance coverage you are buying. Faced with erratic gas prices, unemployment, and salary increases that hardly keep pace with inflation, everybody wants to find ways to cut costs while maintaining their lifestyle. Many Filipinos are unaware that they are entitled to a reduction in premiums; it is just a matter of making appropriate inquiries.
Below are the factors to consider and ways by which you can redesign your policy and save on car insurance premiums in the process:
Get your insurance agent to assist you in securing quotes from at least three different insurance companies. When you ask for a quotation or fill out an application form, give complete and accurate information since the premium rates are based on this information. Insurance companies are guided by tariff rates issued by the Philippines Insurance Rating Association (PIRA) and approved by the Insurance Commission. Rates vary for private and commercial vehicles.
There is stiff competition among non-life insurance companies such that some brokers may present a quotation that appears cheaper. Some companies are aggressive in marketing but not financially stable. They underwrite a lot of business by offering low rates. So it is important to take a look at the company’s financial stability. However, they cannot quote way below the tariff rates unless they are willing to take the risk because the governing institution – the Insurance Commission – can slap them with fines and penalties for any violation.
Start by analyzing coverage limits and compare premiums. Is the coverage quoted based on the fair market value? It is possible to lower your premium by buying smaller coverage. However, if your coverage is below market value, that is also the maximum limit that you can claim from the insurance company in case of total loss or damage. Wouldn’t you feel short-changed if that happens? This is the trade-off or risk you have to consider. Look at the term of coverage, is the quotation based on one year, more than a year (to coincide with the TPL period of coverage) or shorter than a year to make the quote appear cheaper?
Check the cost of insurance
Check the cost of insurance when you are purchasing a new or even second-hand car. As a rule of thumb, the more expensive and higher-performance your vehicle is, the higher the premium that you have to pay. Buying a luxury car, sports car, SUV, four-wheeled drive or diesel-powered vehicle is great but it also means embracing higher insurance costs. Hybrids such as the Toyota Prius generally cost more to insure than a typical four-door sedan, because the complex and intricate parts that make up most hybrids cost more to replace than traditional parts.
Companies may also charge more for cars that tend to cause more damage when involved in accidents, such as certain sports vehicles because these car drivers are more likely to test the speed resulting in a higher chance of being involved in a crash. Repair cost of premium cars such as Audis, BMWs, and Mercedes Benzes are higher due to lower depreciation levels making them more expensive to replace.
There are instances when insurers refuse to cover certain imported car models. This is because it takes a longer period to process claims as the parts, which are more expensive, may have to be imported. These cars also have high theft rates due to the higher black market value than a conventional car. Think twice before buying these types of vehicles. If you wish to save on premiums, buy a safe, moderately-priced vehicle.
The premium rate also depends on the age of your car. Brand new vehicles generally have lower rates compared to older vehicles. So if you have an older car, expect more out-of-pocket expenses in case of accidental damage to your car due to the higher level of depreciation. Depreciation is the decline in value caused by the effects of age, wear and tear, use, weather, and similar factors. When a damaged part is replaced by a new part, the insured has to pay the difference between the value of the part at the time of purchase and its value at the time of replacement. Evaluate the costs involved versus the value of the car if it still warrants comprehensive coverage. Other factors to consider are safe driving habits and less frequent vehicle usage. Decide whether it will be wiser for you to eliminate the comprehensive coverage and settle for the minimum CTPL required by the government. Use the money you save in a savings account for repairs and maintenance.
Review the policy information.
When you receive your insurance policy, check the correctness of the data you have previously given to the insurer because this information was used in assessing your premium. Take note if your vehicle is properly classified – private or commercial, the make and model, mailing or home address and the coverage you have agreed upon. Compare it to the quotation which you have previously approved. Make sure that your CTPL (Compulsory Third Party Liability) coverage is still in force since this is required by the government (PD612, Chapter VI).
The law mandates a minimum P100,000 CTPL coverage to cover against liability for death and bodily injury of third parties. For brand new vehicles, the initial coverage is good for three years, after which it is renewed yearly. This coverage is a prerequisite for car registration with the Land Transportation Office (LTO). It is actually a “no-fault” insurance law that is intended to pay medical indemnity of third party individuals regardless of who caused the accident. Over and the above the amount, there is a risk of possibly shelling out-of-pocket costs, which could be minimal or significant depending on the severity of the injuries or property damage. In case of permanent disability caused by the accidental crash, you may have to support the victim for life. This could be a financial knock-out.
To cushion the impact of potential financial loss, you can choose to expand this coverage by buying extra Voluntary Third Party Liability (VTPL) and Voluntary Third Party Liability – Property Damage (VTPL-PD) under a comprehensive cover. You have the option to determine the amount. Check how much premiums to add for the extra coverage.
The Own Damage and Theft coverage which protects against loss or damage on your car is generally based on the market value of your vehicle’s type, make, and model. The purchase or listed price from the dealer, PIRA (Philippine Insurance Rating Association), AMSI (Auto Management Center, Inc), Buy & Sell, and classified ads of leading newspapers are frequently used as references by insurers.
For an additional premium, extra perils such as Acts of God (AOG) for flood, typhoon, hurricane, volcanic eruption, and earthquake may be extended based on the underwriting guidelines of the insurer. These are normally based on the area of residence or where the vehicle is usually stationed or parked. If you live in a neighborhood that is flood- or typhoon-prone, it is unlikely that the insurer will approve such coverage. Some insurers provide a limited coverage. Another extra peril to consider is Strike, Riot, and Civil Commotion (SRCC). These are all subject to a deductible amount.
Auto Personal Accident covers the driver and unnamed passengers of the vehicle. Usually, the premium is relatively small. However, if you are normally the one using the car including your second car, it is your call to get standalone accident coverage for yourself. If your life insurance policy contains an accident insurance rider, you can waive this extra coverage. However, if you often have family members or friends riding with you, then it is worth buying the coverage.
Consider boosting your deductibles
Deductible is the amount which you share or pay first before your insurance company begins paying the rest. You can reduce the premium by reviewing your current deductibles. For commercial vehicles, the usual deductible is 1% of the sum insured with a minimum of P3,000 while private vehicles has a 0.5 % deductible with a minimum of P2,000. This amount must be paid before your vehicle is released from the repair shop. If you think you can afford to absorb a larger portion of your loss in case of an accidental damage to your vehicle, you can raise the deductible to reduce the premiums. Be cautious however in raising the deductible too much because you might find yourself in a difficult financial situation in case of a major claim. Make sure you have enough savings allocated for this to absorb the level of deductible chosen. The key is having the right deductible.
5 ASK ABOUT DISCOUNTS. Ask your agent or company if you are eligible for any discounts such as no claim bonuses, fleet rating discounts , airbags , anti-lock brakes, anti-theft devices , fire extinguishers, and other safety equipment.
6 LOOK AT THE SERVICE, DEPENDABILITY, AND FINANCIAL CONDITION OF THE INSURANCE COMPANY. Premium should not be the sole basis in choosing the right insurance company. Look at the ratings of the company from independent rating agencies. Malayan Insurance for instance, has a rating of B++ (Good) from A.M. Best and BB- (Stable) rating from Standard & Poor. You can also view the rankings of the authorized non-life insurance companies at the website of the Insurance Commission. It is more important to look at the financial soundness and track record of companies that has the ability to settle claims fairly, efficiently, and promptly than the insurance premium.
7 CHOOSE PAYMENT TERMS. You can save more if you pay your premium in full. There are some insurance brokers who allow installment payment terms however, you have to shoulder extra financing cost by extending terms of payment. A word of caution though if you swipe the full amount of premium through your credit card and pay the credit card company in installments, you defeat the purpose of saving.
8 SWITCH INSURANCE COMPANY? Should you decide to change insurer, make sure you get your new policy way before the old one expires. If you have a pre-paid policy, they will give you back the difference based on a scale printed in the policy if you choose not to avail of their services anymore. Normally, you have to make a written request to get this. Notify the insurer ahead of time. There are also instances when it is the insurance company that opts not to renew your policy due to heavy losses sustained in the previous year. In most cases, the insurance company gives advance notice to the client so they can look for another provider.
Shop around for the best deal but be careful about learning the details and consider all angles before you switch auto insurers. Make sure you are comparing the same coverage. Be alert to differences in policies and terms. Do you want to deal directly to a company or an agent? You may have direct link with certain companies and save a little on premiums but get a cold after sales service especially when a claim arises. Some companies might offer an initially low premium just to entice customers to switch then make significant increases in their premium rates the following year.
9 BE A SAFETY CONSCIOUS AND DEFENSIVE DRIVER to prevent accidents and heavy claims from arising. Simply slowing down or avoid aggressive driving, tailgating, and staying off the cell phone while driving are proven ways to dramatically reduce accidents. Once you have a claim history, this will raise a red flag to the insurer and they may charge you higher premiums the following year. The rate depends on the amount of damages claimed. They have a reference manual from which to base the rate. If you have no claims history, you may be eligible for a no-claim bonus.
10 GET MORE VALUE FOR YOUR MONEY. Check if the insurer provides free membership roadside assistance program such as towing, minor repair service, etc. in case of vehicle breakdown or emergencies. Compare the premium of insurer with this add-on feature and those without. If there is a significant difference in the premium for those without this privilege then, it may be a wiser decision to secure a separate membership in an auto club like the Automobile Association of the Philippines because the MMDA has recently slapped higher penalties for stalled vehicles to reduce vehicular traffic and road obstruction along major thoroughfares of Metro Manila.
Buying a comprehensive car insurance policy is a matter of choice unless you have a brand new car under a financing plan. In this case, the bank requires a comprehensive coverage to protect their interest. While buying a car insurance is an annual renewable coverage where you lose the premium if there is no claim, in reality this is not a reason to fret about. Is it not better that you were accident free for one year? It is like having a spare tire in your car. You carry a spare tire so that just in case one of your tire runs flat, you can make use of the spare tire and reach your destination. In the same manner, you buy a car insurance just in case an accident caused heavy damages to your car, property , injure passengers, or a third party, you have the financial protection of an insurer. With a comprehensive cover, your insurance company will cover the costs of repair or replacement of your car based on fair market value. On top of this, your insurer will provide you legal resources to defend you against lawsuit in relation to the accident instead of you hiring a lawyer and pay out of pocket legal fees and any damages awarded by the judge in a settlement. These court cases will not only cost you money that may deflate your wallet like a nail in a tire but also waste valuable time in attending court hearings which could run for years.
Consult your insurance professional how to come up with a package that is responsive to your current needs, lifestyle and budget. Buy only the coverage you need on the vehicles that need it. Overall, taking a closer look at your auto insurance policy and coverage . Insurance deserves the time and energy it takes to comprehend the intricacies and details that make up your own individual situation. If you choose not to buy a comprehensive coverage, you should also be prepared to face the risk involved. A permanent disability caused by an accidental crash can be financially draining whether you are the victim or offending party. Remember that the primary purpose of buying a car insurance is to protect you from financial loss due to major accidental damage or injuries due to collision. Buying a car involves responsibility not just in maintaining the car in good running condition but also being a defensive driver to lessen the risk of accident resulting to injuries to other motorists, passengers, pedestrians, or the public in general and damage to property. Having a comprehensive auto insurance is a great way to give you financial preparedness and a valuable safety net. Becoming aware of all these things and seeking the regular advice of your trusted professional insurance advisor can provide better coverage and save you money down the road. If you take heed and apply these tips , you will reap economic savings which can be allocated for other needs.
Arlyn W. Cheng, LUTCF, CIS is a Certified Philamlife Financial Planner. Aside from life insurance services, she is also involved with the leading non-life insurance companies like Malayan, Prudential Guarantee and Western Guaranty as well licensed to offer mutual funds through Philam Asset Management Inc. After completing the Registered Financial Planning course, she became a staunch advocate of financial literacy. For comments or clarifications, kindly send your email to firstname.lastname@example.org.