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When you
buy a car, getting a car insurance is as automatic as
night turning into day. Getting a comprehensive
coverage, however, is another story.
Considering the population of motor-vehicle owners, a
small portion of the pie understands the worth of paying
premium for a comprehensive coverage. What most
Filipinos avail themselves (actually, it is due to the
force of the law) is the basic TPL, or third-party
liability insurance. It is also called CMVLI, or
compulsory motor vehicle liability insurance. The name
gives away its purpose and its being compulsory in
nature.
The law
makes it unlawful for a person to use his motor vehicle
without compulsory TPL, or CTPL. This is a condition
precedent for vehicle registration. Clever idea, but I
think the Land Transportation Office (LTO) forgot to
find a way to prevent the proliferation of
“fly-by-night” car insurance companies, but that’s
another story.
For
those who own the latest and relatively new models, and
due to some sale requirements, their vehicles are
covered by comprehensive car insurance. Recently, the
LTO made registration term of latest car models with
comprehensive coverage a term minimum of three years.
For owners of vehicles that are older than five years,
they think it is not worth to pay for a comprehensive
coverage.
A
person’s risk tolerance is not my concern here. My
concern is only to educate the reader about CTPL and
probably the so-called benefits of a comprehensive
insurance. I will leave the right to discern the
“importance” of getting comprehensive coverage to the
reader himself.
What is
CTPL? It is actually a “liability” insurance. In
layman’s term, it is a contract of assuring the general
public that the owner of the vehicle shall be able to
pay him or her in case of bodily and/or property damage
due to the vehicle owner’s negligent use of his car.
For
instance, the driver of the vehicle accidentally ran
over a pedestrian, the pedestrian is assured that he can
claim reimbursement for the hospitalization costs he
spent, or at least some.
CTPL
under the law has a coverage of only P100,000. More than
this amount, the offending party shall bear the cost.
That is for the protection of the pedestrian who is
probably equally negligent anyway. But how about if the
driver swerved his vehicle to avoid the pedestrian and
hit a tree instead? Or worse, he hit the pedestrian and
hit the tree also totally wrecking his car?
Here
comes your comprehensive coverage to the rescue...
Usually, the comprehensive motor-car insurance will give
you the following coverage on top of the CTPL:
1) Own
Damage and Theft (OD/Theft): Coverage against theft or
damages to the vehicle. Say you parked your car and
suddenly found the car’s fender dented and there’s no
way for you to determine who caused the damage, you can
still claim for the actual cost of fixing the damage
(unless the amount is lower or equal to the stated
participation expense of the insured).
Claims
against OD/Theft are subjected to a deductible fee (a
percentage of the coverage or a flat amount) and
depreciation. An adjuster (who is a an independent
contracted party) will determine the actual cost of
damage. Thanks to the principle of “subrogation,” the
insurance company will pay you, and in turn, will be the
party who will have to worry about going after the party
who caused your damage.
2)
Voluntary Third Party Liability (VTPL): This is a
coverage up to a particular amount that is applied after
exhausting the amount provided under the CTPL provision,
or P100,000. In other words, the first P100,000 is
chargeable against the CTPL provision and the excess to
be covered by VTPL.
a)
Bodily Injury—for reimbursement of medical costs for
victims of the vehicular accident.
b)
Property Damage—for property damages caused by the
vehicle.
3) Acts
of God (AOG)—Hmm, I really think insurers should start
changing this terminology! Oh well, AOG is a protection
against perils from natural forces like storms,
flooding, lightning, etc.
For
example, there was a strong typhoon and a huge tree
branch hit your windshield and shatters it. . . if your
motor-car insurance has no AOG coverage, you can’t make
any claim. Loss where the proximate cause is a natural
occurrence is usually not the kind of loss insured
against. Hence, if you are not covered against these
kinds of peril (excepted perils), any losses due to
force of nature will not be a compensable loss.
4)
Passenger Personal Accident Insurance (Auto PA)—works
like your regular PA but auto PA are given to unnamed
passengers of the insured vehicle. Usually, Auto PA
gives compensation for loss of life, dismemberments and
medical reimbursements due to accidents while riding the
insured vehicle.
Now, do
we need all of these? Honestly, I think we do. Accident
is an occurrence that happens not in the usual course of
things. The chance of not getting in an accident is as
likely as meeting one. So why take the risk? When you
reduce your coverage, you expose yourself more to
risk…and come to think of it, you do that just to save
for a measly amount.
Personally, I would rather lose a guaranteed amount
stated in the policy, certainly a small price to pay
compared to paying for something you are exposing
yourself to in case of figuring in a freak accident.
P100,000
is too small an amount for third partly liability. . .
hospitalization cost escalates much more than P100,000.
What if the victim will have to go through a delicate
surgery? P100,000 will surely not suffice. Much of the
properties that your vehicle can damage would be more
than P100,000—that’s for sure.
As for
Acts of God coverage, the Philippines has its share of
natural calamities. It’s actually a tradition of the
Philippines to meet natural typhoons, floods, etc. These
are so common to us—don’t you think you should be
covered against them as well?
The
premium costs for said coverages aren’t too much. In
fact, I often think it’s quite inexpensive for the
benefits I could get and the protection it gives me.
Unfortunately, many nonlife agents don’t go through the
notions of educating clients about the benefits of a
comprehensive coverage—the product features probably
unique to their respective companies.
This, of
course, may be a symbiotic fault. Clients chop premium
amounts. When you do that, you sacrifice your
protection. . . to realize when it is already too late.
Do you
remember Milenyo? I was driving home from Makati during
Milenyo when a huge flying tree branch missed my
windshield by a few inches! Whether it hit me or not
(thank God it didn’t), I am assured and protected
against damage to my car, or worst, my person.
Tip to
everyone: when shopping for motor-car coverage, check
out all the sections and the coverage before making
comparison. A policy from Insurance Company A might be
cheaper than Insurance Company B because they reduced
VTPL, deleted AOG and Auto PA, or worse, reduced Fair
Market Value (FMV) of the vehicle (it’s the basis of
OD/Theft Coverage).
Make
sure that you compare them fairly and squarely before
deciding where to get your insurance. Further, make sure
you are getting coverage from a reputable insurer.
Premium cost is not the make-or-break of getting a
coverage. Some insurance companies may require a more
expensive premium but I’d rather pay a few extra pesos
and be assured that when the time comes, my insurer is
there to pay. There are just too many unscrupulous
nonlife insurers in the Philippines. You should be more
discerning with your choices.
Hmmmm. .
. I’m sure motor-car insurances in other countries may
operate differently. In the US you pay a higher premium
if you have a teenage kid, your premium increases when
you have claims even if you moved to another insurer and
all that, but hey, iba ang ’Pinas eh!
There
are many things that need improvement here with regard
to motor-car insurance. For starters, it’s a bit
expensive. Why? Claims experience in the Philippines is
pretty high. Worse, we’ve been hit by a lot of deceitful
claims by syndicates (involving car shops, adjusters and
other parties), high carjacking rates, etc. All of
these affect premiums.
One way
to reduce premiums is to charge people with bad claims
experiences higher premiums. While some insurers do
that, clients just move to other insurers where they
have no record and get their coverage there at the same
premium rate. This practice is so rampant in the local
industry, that insurers have no recourse but to pass
this cost to the consumers by way of higher
premiums—pretty much like illegal tapping at Meralco.
This
could be avoided if local insurers would cooperate with
each other and share common databases. I was told that
there was a move to do this, but, somewhere, somehow,
the project was shelved or put on hiatus. Banks share
credit history, life insurance companies share medical
results (Medical Impairment Bureau). Why not nonlife
insurers?
The top
10 nonlife insurers should and can start this. Everyone
else will follow. Or, probably, another law will have to
be enacted!
Hope
this helps the readers. It’s time to understand all
these things that we spend our hard-earned money on,
right?
J. Randell Tiongson is a training specialist,
personal-finance educator and coach and a director of
the Registered Financial Planning Institute. He has been
engaged in the various facets of the financial- services
industry for nearly two decades. He is also the
cofounder of
www.income-tacts.com
with Efren Ll. Cruz, an interactive site dedicated in
the financial literacy of every Pinoy. For inquiries,
you may send an e-mail to
randellt@gmail.com.
Join the 10th RFP Program (April 12 to May 31, 2008).
Visit www.rfp-philippines.com or inquire at info@rfp-philippines.com/Tel.
No. 634-2204. |
