Getting Insurance for Your Second-Hand Car Is a Good Idea
A car insurance gives you a financial support during unwanted accidents. Despite saving a significant amount in purchasing a second-hand car, a car accident can cause you more than what you have saved for.
Getting a second-hand car can provide big savings and a big value-add if you get it right. But you can get the most benefit by making sure you won't have to pay nerve-wracking costly fees for potential damages to and failure or loss of your car by investing on a good insurance deal. Here are some things that you need to know about insurance for used cars. Should you get one or not?
For many Filipinos, the constant, if not daily, battle of commuting in the metro can be too tiring. Add to that the fact that most offices are situated in Metro Manila while many residents live in the outskirts of the city and even in nearby provinces that would take two to three hours of commute time to and from their houses to their workplaces in a normal traffic situation. These conditions leave most people with no choice but to purchase their own means of transportation.
Not everyone in the country have deep pockets to afford brand new cars, however. With the government's TRAIN Law in effect, prices of cars in the Philippines have soared with the burden of excise taxes being shouldered by the consumers. So, some people who really need to have private transport but couldn't afford a brand-new one resort to buying used cars.
The expenses of owning a car doesn't end with the purchase though. A car insurance is always a part of the investment. What about with a used car? Should the owner take steps and spend money to insure it? A lot of questions are probably entering your mind as regards whether or not to purchase an insurance policy for your vehicle. In hopes to answer your questions, and to guide you in decision-making, we have put up some information and details that may be useful to you.
Car Insurance Policy in the Philippines
Every vehicle owner in the Philippines is mandated by the government to get a compulsory third-party liability (CTPL) insurance regardless of the vehicle's age. This type of insurance does not apply to your vehicle unit, but it covers third parties, such as your passengers, passengers of the other vehicle and passersby or pedestrians who would be injured or even killed in an accident that your car got caught in. This insurance does not cover the driver, just the third party or parties. You cannot register your vehicle with the Land Transportation Office (LTO) if you do not have a CTPL.
If you purchase a car on an installment basis, or it is encumbered with a bank, you are required by the bank or the dealership to get a comprehensive insurance coverage for your car. A comprehensive insurance covers your vehicle such that the insurance company will help pay for repair of damages that your vehicle may incur or replace your vehicle if it gets stolen. Depending on the insurance coverage that you paid for, damages covered would be from fire and vandalism, among others. An insurance policy with fewer coverage points are cheaper versus those with full coverage such as including acts of nature and collision.
If you purchase your second-hand car outright cash or from a person or an online or physical dealership, you have the option to purchase or not to purchase an insurance policy for it. It may still be covered upon purchase, so clarify that from the seller and ask when the coverage will lapse. You may choose to continue where the previous owner left off, or select a new insurance company and policy, or discontinue the coverage.
Common Misconception Surrounding Insurance Coverage for a Used Car
Due to lack of a specific policies on second-hand vehicle, people tend to have various misconceptions that may affect their decisions to avail of insurance coverage for their pre-loved car.
1. Not insuring your second-hand car saves you cost. Mostly due to cost-saving reasons, some people opt to forego insurance coverage for their used vehicles. What they fail to consider if that second-hand cars, depending on how well the previous owner took care of it, would require more maintenance. It would also be more prone to technical issues that might lead to minor or major accidents. Securing an insurance for it is thus much cheaper in the long run than having to spend a huge amount on repairs or parts replacements.
2. Used cars are always cheaper to insure than brand-new cars. There is a misconception that insurance for used cars tend to be less expensive than for brand-new ones. However, this isn't always the case as used cars tend to need more maintenance and may come with issues such that they can be be just as expensive to insure as newly purchased ones. Depending on factors, which we'll discuss later in this article, a used car can even be more expensive to insure than a new one.
In normal circumstances, however, second-hand cars generally cost less to insure than a newly purchased car. A used car's value has already depreciated, and it has become less expensive to replace.
3. Car models that are over 10 years of age will be refused coverage by insurance companies. This seems to be a common misconception, but while it's true that it isn't easy as a breeze to get insurance coverage, especially comprehensive coverage, for aged cars that aren't well maintained, cars older than 10 years can still be insured, but there would be higher costs involved. If your car is still in a very good condition, opt for a coverage but if your old car is about to fall apart at just a slight bump on the road, then foet it. Maybe it's time to replace the car anyway. Or, put simply, do not buy a used car that is 10 years or olrgder, or about to get 10 years of age. It might be more costly to keep up with maintenance and repairs than buying a younger model.
4. All insurance companies offer the same benefits and price. No, they don't. Better canvass for insurance companies like you would have canvassed when you were buying a car. Some insurance companies have higher premiums than others. Some offer better freebies than others. Freebies may include free check-ups and the likes. Do gather info on the insurance policies offered by a few companies, compare their rates versus the perks and settle for one that is within your budget but provide acceptable or reasonable coverage.
Factors that Affect Used Car Insurance Coverage
We've already established age as one of the main factors, but there are actually a lot more. These factors would determine whether your used car will be accepted by an insurance company and would determine the premium that you will have to pay for it.
1. Age of the car. The older a car gets, the more you face risk of damage or technical failure. It's a sad reality that everything that ages weakens, grow rusty and gradually dies. Same is true with cars. And the older a car gets, the more its value depreciates. Car companies steer clear of cars aged 10 years and older, but insurance is a business and will not refuse any business endeavor that will fetch some profit. As long as you're willing to pay a high premium to get your aging car insured, then it can be done.
2. Condition of the vehicle. Insurance companies won't be able to resist a well-conditioned, healthy car. Even if your car is a bit old, but well maintained, you can have it insured. A healthy vehicle means its performance is still near flawless, it can still run smoothly without any hiccups along the road, does not show signs of breaking down anytime soon and does not show any need for repairs.
Used cars that show symptoms of a problematic engine or internal system is unlikely to get insured. As earlier mentioned, insurance companies are after profits. It won't be good for the business if they insure a car for a small value and end up spending a lot for repairs or spare parts that might even exceed the car's actual market value.
3. High risk of theft. There are car models that are simply attractive to thieves and poses risk of being stolen. Last year, 2019, the Toyota Fortuner tops the list of most carnapped cars in the Philippines. The Fortuner has a high resale value even if it has reached over 5 years of age. The Nissan Urvan and Isuzu MU-X follow the Fortuner and for the same reason of high resale value, aside from the fact that they are indeed good performing, highly reliable and greatly attractive vehicles. The Toyota Vios, Toyota Camry, Honda Civic, Ford Ranger and Ford Raptor also join the list of most carnapped cars, mainly because their design makes them easier to dispose of, either as a repainted, refurbished unit or as chopped parts.
If your used car model is a thief magnet, brace yourself to pay a sizeable insurance premium for it.
Modern vehicles nowadays come with advanced anti-theft features. If your used car comes with such modernity, then your second0hand car is mostly going to get covered.
4. Cost of repair and replacement of parts. There are rare vehicles whose parts had to be shipped from abroad, or simply not available locally. This makes it harder to repair or replace damaged parts. This will make your premium payment go up, or some insurance companies might even refuse to insure your car. Examples of this are imported cars and limited edition imported cars.
5. Safety level and features. Some cars have high safety ratings such as the Toyota Corolla Altis. Safety ratings refer to the capability of the car to protect the driver and passengers of its cars. Less risk of accidents means lower insurance costs, so it is easy to get coverage for such car models.
Cost of Insurance in the Philippines
As of this writing, a private car owner needs to pay a minimum of PHP 650 for a CTPL insurance. This covers a maximum amount of PHP 100,000 within the prescribed limits of the Philippine law. Since the Insurance Commission (IC) regulates CTPL insurance premiums, this rate will be the same for all models, brands and vehicle types. It is against the law for an insurance provider to charge more than what's been set by the IC.
Note again however that CTPL does not cover damage to your car or the other party's car, nor does it cover for injuries of the car driver. It only pays for injuries to third parties involved in the accident.
Comprehensive insurance costs may vary per insurance company and the coverage. As of this writing, rates may start from as low as PHP 8,000 to as high as PHP 30,000 on an annual basis.
Tips on How to Save on Used Car Insurance Premiums
Whether for brand new or a used car, insurance premiums require you to shell out a substantial amount of money. But since we've established that getting insurance coverage is important, the next thing you need to know is how to save some money when insuring a used car.
1. Canvass and compare insurance companies and coverages for used cars. Shop around and compare first. Take into consideration the lowest rate for a good coverage. Consider the credibility and legitimacy of the insurance company as well. Don't settle for a small fee with an unknown company but later on you will have difficulty making claims. Aim for value for money.
2. Select only the necessary car insurance coverage. You do not need to purchase a lot of add-ons that you do not need. It's wasted money if you won't be able to utilize services at all. If you have a very old car, consider just purchasing a CTPL and do away with the comprehensive. If you do not live in a flood-prone area and you park your car at a protected space, you can skip the acts of nature add on, which is also a sizeable addition to the premium.
3. Increase your deductible. Deductible refers to the "participation fee" or the amount you need to cash out when you make an insurance claim. For private cars, the current average rate is 0.5 percent or a minimum of PHP 2,000 per claim. The insurance company will pay what's left of the expense after the participation fee has been deducted. If you increase your out-of-pocket contribution, your premium will be lessened; however, make sure you can afford the deductible you set to avoid problems later on.
4. Put safety first. If you would have a history of always claiming for insurance – broken bumper from bumping into a post in January, deep scratches from leaning too close to a fence in March, broken side mirror due to vandalism in September – your insurance premium will most likely go up the following year. So be careful when driving, take care of where you park your car, and put safety as your number one priority.
Some companies even provide a no-claim bonus as a sort of incentive which could equal to as much as 50 percent savings in your premium.
Buying a used car can be a big headache if you're not careful and if you do not take into consideration essential factors. You either end up with a car that's worth what you paid for it or be stuck with a moving junk that will bleed your pockets dry. Make sure you come up with wise, informed decisions in your purchase, and more than that do not try to get cheap and skip out on the insurance. A nice, reasonable insurance policy is a good value add to your pre-loved vehicle to ensure that it stays reliable for a long time even if it's not brand new.
More importantly, do not forget your responsibility as a driver. Follow safety rules, do your best to keep your car well maintained and you will fully enjoy the benefits of your second-hand car.
USED CAR BUYERS GUIDE LIST
- Before Buying a Car
- Buying a Used Car
- Selling your Car
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