Is car insurance a necessity?

Question: My wife and I just bought our first car and we need help choosing the right car insurance. Is the basic CPTL insurance offered by the LTO enough? Or is it worth buying a comprehensive car insurance? If we choose the latter, what are the things we should be looking out for? –John Santos

Answer: Congratulations on the new car! It’s natural to feel unsure and overwhelmed when buying car insurance for the first time. Let me guide you through the process.

When you register your car with the Land Transportation Office, you are required by law to get basic Compulsory Third Party Liability (CTPL) car insurance to protect against possible liabilities to third parties. According to the Insurance Code of the Philippines, a third party is defined as any person other than a passenger, family member, or household member of the vehicle owner.

In other words, CTPL protects pedestrians from potential damages or injuries that arise from the use of the insured car. This is compulsory and covers any bodily injuries or deaths caused for of up to P100,000. However, CTPL does not cover loss or damages to property, and is very limited in this regard.

Many non-life insurance providers also provide comprehensive car insurance. Essentially, comprehensive car insurance has a wide coverage and insures you against damage, car theft, liabilities caused by collisions, fire, malicious acts, acts of God (and nature) and personal accident insurance of the passenger.  While this is not mandatory, it provides some measure of financial security by covering car repairs and other damages should any unfortunate incidents occur.

It’s smart to get this type of insurance because risk is an everyday reality. Accidents can happen to you anytime, and if you’re driving to work every day, you’re exposed to risks that you do not have direct control of.

To illustrate, Edsa accommodates more than two million vehicles on a daily basis. If you take Edsa to work, you’re exposed to more than 27,000 public utility buses that figure in the worst traffic accidents.

Another good reason to get comprehensive car insurance is the fact that the Philippines endures an average of nine tropical storms in a year. It’s like saying your car is at major risk at least nine times in a year! I have a lot of friends who had damaged cars during the worst flooding in Manila. Those who had Acts of God or Acts of Nature in their policy were well-taken care of by their insurance providers.

If any of these unfortunate incidents makes your car inoperable, comprehensive insurance picks up the tab for repairs and does all the legwork for you. So instead of doing the paperwork and trying to get them stamped at one government office after another, the insurance company will take care of all this. Depending on your coverage, they’ll even foot the hospital bills in case any passengers got injured in the accident.

When getting your car insurance, make sure that you read the fine print and understand what’s included and what isn’t. Many “comprehensive” insurance policies don’t insure against all types of damages, like riots or typhoons. Coverage for these instances will require additional clauses:

Acts of God or Acts of Nature covers damage from flooding and other non-manmade incidents

Personal Accident provides a small amount for any injuries sustained during a road accident

Medical Reimbursement lets you reimburse medical expenses from injuries related to the accident

Other add-ons include riot (for protest or riot-related damage), upgrade (for upgraded car equipment), roadside repairs and towing

Before including these add-ons to your coverage, determine how and where you use your car. For example, if you live in a flood-prone neighborhood, the Acts of God clause is worth paying for. If you drive to work daily, it’s safe to include the Personal Accident or Medical Reimbursement additions.

Get to know the top car insurance providers in the Philippines and see what coverage they have to offer. As a shortcut to your research, there are several websites offering comparisons among the car insurance packages of various providers.

These websites will give you quotes from four or more companies, and do a side-by-side comparison. This makes it easier for you to analyze your options and make your choice based on price and your own needs.

Make sure that you compare premiums fairly and objectively before making your final choice. Some insurance companies may offer very low rates, but the claiming process can be difficult.

Ask your friends which providers they are using and find out how easy or difficult the claims process was. Personally, I don’t mind paying a few thousand pesos more if my insurance provider rescues me during my time of need.

Catch me, Marvin Germo & Paulo Tibig for some learning on finance, investment  and entrepreneurship at Money Talks Cebu on April 25, 2015. For inquiries,  message 0905-3104447.

Randell Tiongson is author of best-selling books No Nonsense Personal Finance, Money Manifesto  and coauthor of Inquirer’s Money Matters book.  Visit www.randelltiongson.com. -Randell Tiongson