August 22, 2012
Getting car insurance
Dear Mrs. Colayco,
Is it a wise decision to spend money on car insurance? I have been debating with a friend over it. He says it's all about spending money on "being safe than sorry", but I personally dislike the idea of paying a car insurance company every month or every year for something that can be avoided. What if my car stays fine the whole year and it doesn't get involved in any accident? Will they give me back my money? Of course not. They're happily spending it on something else while I was "being on the safe side".
Sorry for the sardonic tone, but I just won't be convinced until I hear it's a good investment from someone like you're a money expert. I don't know the ins and outs of car insurance and I might have a lot to learn, so maybe you can help me.
Mrs. Colayco replies:
It is so normal to be unhappy to pay for a service that you cannot see a definite return on. On the other hand, would you prefer to have your car meet an accident so that you can make use of your car insurance? Can you really be sure that you will not meet an accident if you are very careful? Would you ever say at the end of the year: "Sayang, I did not get into an accident or lose my car to use my car insurance." Wouldn't you just be so grateful to be healthy and carefree?
It is true that you don't feel good that an insurance company and agent will make money on you. But if you do need their services ever, wouldn't you be happy they were there to give the service?
The happy middle ground is to find the right and best-value car insurance coverage from a reputable insurance company with a trustworthy and service-oriented insurance agent. Coverage packages can be negotiated according to the type and age of your car and your needs. Some of the more common types of coverage are Third Party Liability, Own Damage and Theft and Acts of Nature.
In fact, Compulsory Third Party Liability (CTPL) coverage for Php100,000 is a requirement before you can even register your car. It does not cost very much. Voluntary Third Party Liability (VTPL) can be added to the CTPL if you feel you need more coverage. This insurance is needed in case you hit a pedestrian, damage another car or hurt any passenger in another car. It covers the medical costs of persons who might be hurt and the cost of fixing the damaged car. However, there is an amount called "deductible" that you have to pay each time you claim for damages.
"Theft" coverage covers the cost of replacing your car in case it is stolen. There are certain brands of cars that are more prone to carjacking. These cars are usually carjacked because it is easy to dismantle parts to sell. Also, cars that are very saleable are also more prone to carjacking. If your car will always be parked in a safe place or if it is too old to be carjacked, you may not want theft insurance. But it comes hand-in-hand with Own-damage insurance. You cannot have one without the other.
"Own-damage" coverage is needed if you get into an accident where it is your fault. You will have to pay for the damage to yourself and/or your car. If it is the fault of the other driver, then, they can pay for your costs with their third-party liability coverage. Sometimes, it is easier to just claim on your own-damage insurance coverage instead of claiming against the third party when there is an accident.
If you get into an accident and you will claim from your own insurance, you need not wait for a traffic policeman to establish who is at fault. One option is to take pictures with your cellphone camera and just agree with the other person involved in the accident to prevent traffic obstruction. But remember, that there will always be a "deductible" which means that you have will have to pay an amount each time you claim.
If you are really very careful, maybe you do not need Own-damage and Theft coverage. It is a risk you can take as long as you understand that you are taking a risk.
"Acts of Nature" coverage became popular with "Ondoy" when cars were totally submerged in floodwater and wrecked. It covers damages caused by typhoon, flood and earthquake. Again, maybe you can take the risk not to be covered if you are always parked in a safe place.
Car accidents are physically painful to the people involved. It also involves a lot of reporting, documentation with the police and other authorities plus financial costs. However, it becomes even more troublesome, if you are not insured. Think of it as an investment for your financial "peace of mind."
Hope this helps you. Stay well.
Mary Anne B. Colayco is a happy wife, fulfilled mother of three beautiful ladies, helpful mother-in-law of two handsome gentlemen, doting grandmother of two adorable girls and the diligent President of Colayco Foundation for Education (CFE). For over 40 years, Mabsi, short for MAB-C, was in executive-level finance-related positions, as well as general management positions in Ayala Corporation subsidiaries (then, Pure Foods and Globe Telecom among others) and also served as a Commissioner of the Energy Regulatory Commission.
She joins her husband, author-entrepreneur Francisco J. Colayco in their common advocacy of teaching financial literacy to income-earning Filipinos. Herword.com draws from Mabsis wealth of life experiences in giving advice on personal money management.
If you have any questions about personal finance, e-mail firstname.lastname@example.org.