The Higher Costs of Lower Premiums

Published: October 22, 2015 | Updated: December 13, 2019 | Posted by: Carlo Miguel Castañeda | Car Insurance


Higher Cost Of Lower Premiums

When it comes to insuring your car, you consider the cost above a lot of other factors. To go beyond the CTPL means looking for the right amount of coverage for you and the car, and the costs in between.

We’ve already discussed the factors that affect your premiums, but you’d be surprised to learn that there are times when lower premiums can actually drive up your personal costs. A lower premium may have adverse effects on the amount you pay out of pocket.

“Insurance is about protecting your assets,” says Gio Puccini, an insurance specialist. “Reducing coverage exposes one to the thing they are attempting to avoid by purchasing insurance: out of pocket costs.”

How does it happen?

It starts with your deductibles. This is the amount you agree to pay out-of-pocket when you file a car insurance claim. Not all coverages have deductibles, and those that do can also be limited.

While you may be lowering the total overall cost of your premiums, it’ll mean that you will assume the larger financial portion of any damage to your car. In the case that you actually manage to wreck said car, your insurance won’t cover as much.

The larger financial responsibility is a risk to your funds, and may end with you paying way more out of pocket than should have been necessary.

As an example, if you’ve got a Php 3,000 deductible on your comprehensive policy that’s worth Php 19,000, you’ll be paying Php 3,000 out of pocket when you make a claim. You’ll also need to pay that amount before your car can be repaired. If your bill is beyond your deductible, the insurance will cover the rest.

Price doesn’t always equal value

You may have lowered your yearly premium, but that doesn’t mean you’re getting the same quality of service as you would have if you were paying the right amount on your premiums.

Price is a very easy thing to focus on if when shopping for insurance. When price is the determining factor in picking out car insurance, you may find yourself dissatisfied with your policy. When you plan on taking out auto insurance beyond the Compulsory Third-Party Liability cover, you’ll need to take your needs as a car owner into account.

Ask yourself a few questions, for example:

  • How much coverage do I really need?
  • Is my area safe?
  • Does a quick claims process matter to me?

Questions like these help you determine what you may be losing by focusing purely on keeping your premium payments low. Understand your car insurance needs so that your provider can best assist you.

Another issue you may encounter is the fact that there are times when your low premiums mean less protection because it means your car is being undervalued.

For example, a 2015 Toyota Vios has a fair market value of Php 577,000. Let’s say that your current premium is around Php 15,000 a year. That’s low, and you’ve saved some money on your policy. That’s great until something happens to your car, and you learn that it was undervalued. A premium that low can mean that your car was valued at less than its FMV.

What does this mean for you? When your car is underinsured, its fair market value is lowered. So when your car is totaled, the amount that you claim won’t be enough to allow you to purchase the same car at the same price. The money you saved on a lower premium goes out the window when you’re on the hook for the price of a new car.

What to do

Look beyond price to get the most out of your car insurance coverage. Here are a few tips:

  1. Always make sure you’re covered for the fair market value of your vehicle. This ensures that you’ve got access to top-notch service and coverage. Remember to check your vehicle’s fair market value and your policy. Using the Vios as an example again, your premium should be estimated at Php 20, 800+ at the car’s fair market value of Php 577,000.  If in doubt, talk to a trusted car insurance adviser.
  2. Ensure you’ve got comprehensive coverage. Going without some of the most basic coverages, like a comprehensive policy, is sure to drive up your out of pocket costs. To break it down, a comprehensive policy provides protection against the following, for example:
  • Loss of Use
  • Personal Accident
  • Theft
  • Acts of Nature (especially in rain- and flood-prone areas)

Without a comprehensive policy, you’re looking at out-of-pocket expenses of Php 30,000 at the least, and that’s for something as small as a fender bender. Think about the amount you’d have to pay in the event that someone in your vehicle is hospitalized due to an accident: you’re looking at close to Php 200,000 out of pocket.

With a comprehensive policy, you’re paying as low as Php 20,000 a year, and it will cover all these out of pocket expenses with ease.

3. Shop around. Your best bet is to compare your options for auto insurance to make sure you’re getting the best deals. MoneyMax.ph allows car owners looking to make a change in their insurance to actually talk to trustworthy car insurance experts who will work with you to determine the ideal amount of coverage for you at the right price.