Participation Fee in Car Insurance: What Is It and Why Is It Needed?
There are typical questions one may ask about their coverage or specifics on the policy they’ve acquired. Among these questions involve the participation fee in car insurance.
“How much is my participation fee?” “Why do I have to pay a deductible for my car insurance?”
Still have a vague idea of this car insurance cost? Here’s what you need to know about car insurance participation fees in the Philippines.
Table of Contents
- What is the Meaning of Participation Fee?
- Why Do Car Insurance Providers Charge a Participation Fee?
- Types of Participation Fee
- How Much is Participation Fee in Car Insurance?
- How to Save Money on Car Insurance Participation Fee
- Final Thoughts
What is the Meaning of Participation Fee?
A participation fee is an amount you pay out-of-pocket to your car insurance provider every time you make a claim before the insurer shoulders the rest of the claim value. Participation fee payment is one of the requirements for most car insurance claims.
As a policyholder, you’re required to “participate” in your car insurance cost. Essentially, this means you share in the expenses for repairing your damaged vehicle after an accident.
Read more: Guide to Filing a Car Insurance Claim
Why Do Car Insurance Providers Charge a Participation Fee?
Car insurance companies require their clients to pay participation fees once they file a claim for vehicle loss or damage, like during the aftermath of Typhoon Ondoy in 2009 when claims spiked in Metro Manila.
There are three main reasons why insurance providers charge a participation fee:
- The driver of the vehicle is liable for any damage it incurs in an accident.
- Participation fees discourage people from committing fraud when filing a claim.
- These insurance fees prevent car owners from abusing their insurance benefits by claiming minor vehicle damage.
Types of Participation Fee
Generally, participation fees in the Philippines cover the deductible fee, depreciation fee, or both. These costs are deducted from the proceeds of your claim.
What is Deductible Fee in Car Insurance?
A deductible fee is what you pay for every filed incident involving vehicle damage or loss. Depending on your car insurance coverage, there can be one deductible or more. However, not all policies have deductibles.
A deductible is typically selected when you get a comprehensive, collision, and theft/own damage coverage. Some cases that qualify for deductibles are when you get personal injury protection coverage.
Deductibles come into play when you find yourself at fault in a car accident, and you have the coverage mentioned above. Your vehicle repairs will come out of your deductible amount, which is typically out-of-pocket. Anything above that, or above the car’s fair market value (FMV) , will be covered by your insurance company.
Here are the standard car insurance deductibles in the Philippines:
|Vehicle Type||Deductible Fee|
|Private cars (sedans, hatchbacks, 2-door sports coupe, etc.)|
Whichever of the following is higher:
|Commercial vehicles (vans, SUVs, AUVs, etc.)|
Whichever of the following is higher:
Can My Deductible be Decreased?
Car insurance companies don’t allow a lower deductible because the Motor Tariff already prescribes the minimum deductible fee for vehicles in the Philippines. However, you can increase your deductible fee to lower your insurance premium.
Do I Still Pay the Deductible If I’m Not at Fault?
The deductible fee only kicks in when you figure in an accident AND you are at fault. If the investigation finds out that you aren’t at fault, a process called subrogation happens. Here, the other person’s insurance company will reimburse you through your insurance provider, if the investigation and subrogation are successful.
What is Depreciation Fee in Car Insurance?
A depreciation fee is a certain percentage you pay (depending on your car’s age or depreciated value) for the cost of new parts to replace damaged ones. Meaning, you’re paying the difference in the value of an auto part at the time you bought the car and its value at the time it’s replaced.
This type of participation fee applies only to vehicles older than three years. There’s no depreciation fee for total vehicle loss.
Here’s the depreciation schedule that car insurance companies use to compute a policyholder’s share of the replacement part cost:
|Vehicle Age||Depreciation Fee for Private Cars||Depreciation Fee for Commercial Vehicles|
|Up to three years||None||None|
|Over three years up to four years||20%||25%|
|Over four years up to five years||25%||30%|
|Over five years up to six years||30%||35%|
|Over six years up to seven years||35%||40%|
|Over seven years||40%||45%|
|Batteries, tires, ball joints, tie rods, and shock absorbers||45%||50%|
How Much is Participation Fee in Car Insurance?
Car insurance participation fees in the Philippines cost at least PHP 2,000 or PHP 3,000, depending on the vehicle type, fair market value, and age.
How to Compute Participation Fee
Here are the steps to easily calculate how much participation fee you’re going to pay:
- Compute your deductible fee. Multiply your car’s FMV by 0.5% or 1% (depending on vehicle type). If the resulting amount is higher than PHP 2,000 (or PHP 3,000 if you own a commercial vehicle), that’s your deductible fee. Otherwise, you should pay only the minimum deductible fee.
- Compute your depreciation fee. Multiply your vehicle repair cost or replacement part cost by the corresponding rate in your policy’s depreciation schedule. For example, if your car is four years old, your depreciation rate is 20%. Skip this step if your vehicle age is three years or less.
- Compute your participation fee. Simply add your deductible fee and depreciation fee (if any) to determine how much participation fee you must pay.
Sample Participation Fee Computation
For example, your four-year-old sedan with a fair market value of PHP 1 million figures in an accident, and the replacement cost for a damaged part is PHP 10,000.
Here’s how to compute the participation fee for your car insurance claim:
- Deductible fee: 0.5% x PHP 1 million = PHP 5,000
- Depreciation fee: 20% x PHP 10,000 = PHP 2,000
- Participation fee: PHP 5,000 (deductible fee) + PHP 2,000 (depreciation fee) = PHP 7,000
This means if you’re making a claim for PHP 10,000 to have your damaged car part replaced, you’ll have to pay the participation fee of PHP 7,000, and the rest (PHP 3,000) will be shouldered by your insurance company.
How to Save Money on Car Insurance Participation Fee
Fortunately, there are different ways to cut down on car insurance costs, particularly your participation fee when making a claim. Here are some of them:
1. Consider a Fixed Deductible Fee
If you’re trying to keep your participation fee low, get a car insurance policy with a fixed deductible of around PHP 2,000 to PHP 3,000. However, choosing a fixed deductible can lead to a higher premium.
On the other hand, a higher deductible will mean a lower monthly premium, and you can opt for it to save money. But this is where your driving habits and typical routes come into play. If you travel along congested roads and accident-prone roads, a lower deductible may be a better option in the long run.
Still, the biggest determining factor is whether or not you have the money to pay off the repair bill if you get into an accident.
2. Pursue Your Claim Against the Third Party If You Aren’t at Fault
If another person caused the accident, you can avoid paying the participation fee (or get a refund) by pursuing your claim against the insurance provider of the third party. In such a case, your insurance company will issue a Certificate of No Claim.
3. Use Surplus Parts for Repair
You can avoid paying the depreciation fee by using surplus parts (ideally bumpers, doors, or fenders)—which aren’t subject to depreciation—instead of brand-new parts. When you do, make sure to inform your insurance provider about it.
4. Pay for the Repair Bill by Yourself
When your participation fee is higher than the repair cost, it doesn’t make sense to make a claim for car insurance. In such a case, you’re better off taking care of the repair bill on your own.
These factors push up the participation fee for car insurance claims:
- Fair market value – The higher your vehicle is worth, the higher your deductible.
- Owning a bigger vehicle – Vans, SUVs, AUVs, and similar vehicles fall under the commercial vehicle category, which all have higher deductibles than private cars.
- Old age – The older your vehicle is, the higher its depreciation cost.
- Replacement of certain parts – Replacing a battery, tire, ball joint, tie rod, or shock absorber will set you back the highest depreciation fee, with rates of 45% for private cars and 50% for commercial vehicles.
Understand how the participation fee works, the coverage you want for your car, and how much you can afford. Getting too little coverage and too many deductibles can be impractical, and too many covers are a sure way to ruin your finances.
It helps when you can compare your picks for providers and the price ranges that you’ve got in mind. It also helps to ask questions to your insurance advisor when you feel the need to, just to get the maximum peace of mind when you’re driving.
Get a Free Car Insurance Quote!
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-  “How to Calculate the Value of Your Car” (Carmudi, 2017)
-  “Where are the most congested roads in Metro Manila?” (BusinessWorld, 2018)
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