Tip Sheet

Car ownership 101: The basics of vehicle insurance

Every car owner should know this
The basics of car insurance
PHOTO: Shutterstock

Now that you’ve pulled the trigger and committed a good deal of your financial resources toward the purchase of a new car, be prepared for its insurance. You will spend at least 2.25% of the fair market value of the car every year for the first three years of ownership of your brand-new car. That’s the tariff rate followed by insurance companies for comprehensive insurance coverage. Add a half percent to include Acts of Nature coverage.

You can literally say goodbye to money you pay for insurance. As we all know, insurance is something you want to have if something untoward happens, but everyone prefers not to be in the situation that would call for filing a claim.

However, should you ever need to file for a claim, you’d have some peace of mind knowing you wouldn’t have to shoulder the entire amount of the repair or replacement of your car. You’d need to pay the deductible amount, though. For most privately owned new-car policies, it’s half a percent of the fair market value of the car at the time of the claim or P2,000, whichever is higher. What does that mean? In a nutshell, if the cost of repair is less than P2,000, it’s better you take care of the repair yourself. That’s the rule of thumb for cars three years old or younger.

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For anything older than three years old, it is different. You need to pay more as you’ll be expected to pay part of the cost of the repair according to its depreciated value when new parts are used in the repair.

In either case, you’re better off saving yourself the hassle of having to deal with the paperwork required when making a claim by not getting into an incident to begin with.

For vehicles purchased through financing, most (if not all) lending institutions will require you to have comprehensive coverage until the loan has been fully paid for and the title turned over to you. At that point, you may choose to forgo comprehensive insurance coverage.

What you can’t do without is the government-mandated Compulsory Third Party Liability (CTPL) coverage. This is the minimum insurance coverage required to have a motor vehicle registered. Without it, you can’t legally operate your car on the road.

The other forms of standard insurance coverage under a motor vehicle policy are no-fault indemnity, loss or damage, and excess liability insurance. The details can be found in your insurance policy written in legalese.

Note that any accessories that you’ve added to your car aren’t going to be covered by the standard comprehensive insurance policy unless you submit them in writing and pay the additional premium to have them covered by the policy as well.

So, how do you save on car insurance?

  • Be a good driver.
  • Equip yourself with advanced skills to enable you to drive defensively.
  • Aggressively avoid putting yourself in situations that may potentially lead to an accident or an incident of theft and vandalism.

No claims means no additional costs apart from your insurance premium, and ideally no damage to your car. Then, maybe—just maybe—you can start considering paying for the minimum insurance coverage required by law. Then invest or save the rest or your money in an emergency fund on the off chance that your car does get damaged.

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PHOTO: Shutterstock
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