There are typical questions one may ask about their coverage or specifics on the policy they’ve acquired. Among these questions are about participation fees.
Still have a vague idea of these insurance costs? Here’s what you need to know about the participation fee in your car insurance policy.
What is Participation Fee?
A participation fee is the amount you pay out-of-pocket before the insurance company pays towards a car insurance claim. As a policyholder, you "participate" in your car insurance cost.
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
when claims spiked in Metro Manila.
How Participation Fees Work
Generally, participation fees in the Philippines cover the deductible, depreciation, or both. These costs are deducted from the proceeds of your claim.
What is the Meaning of Deductible?
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
, will be covered by your insurance company.
What is the Meaning of Depreciation Fee?
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. It applies only to vehicles older than three years. There's no depreciation fee for total vehicle loss.
Why Car Insurance Providers Charge Participation Fee
Car insurance firms in the Philippines require a participation fee payment from policyholders making a claim for three main reasons:
- 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 policy by claiming minor vehicle damage.
How to Compute Participation Fee in Car Insurance
Car insurance providers in the Philippines compute participation fee based on vehicle type and age.
How is Deductible Fee Computed?
Here are the standard deductibles for car insurance in the Philippines:
|Private cars (sedans, hatchbacks, 2-door sports coupe, etc.)
Whichever of the following is higher:
- 0.5% of a unit's fair market value
- PHP 2,000
|Commercial vehicles (vans, SUVs, AUVs, etc.)
Whichever of the following is higher:
- 1% of a unit's fair market value
- PHP 3,000
Can the Deductible be Decreased?
Car insurance companies don't allow a lower deductible because it's prescribed by the motor tariff for vehicles in the Philippines. However, you can increase your deductible to lower your insurance premium.
Do I Still Pay the Deductible If I'm Not at Fault?
The deductible amount only kicks in when you figure in an accident AND you are at fault. In the event that the investigation finds 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 process are successful.
How is Depreciation Fee Computed?
Here's the depreciation schedule that car insurance companies use to compute a policyholder's share of the replacement part cost:
||Depreciation Fees for Private Cars
||Depreciation Fees for Commercial Vehicles
|Up to three years
|Over three years up to four years
|Over four years up to five years
|Over five years up to six years
|Over six years up to seven years
|Over seven years
|Batteries, tires, ball joints, tie rods, and shock absorbers
For example, your four-year-old sedan worth 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% of PHP 1 million = PHP 5,000
- Depreciation fee: 20% of PHP 10,000 = PHP 2,000
- Participation fee: PHP 5,000 (deductible amount) + PHP 2,000 (depreciation cost) = 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 shoulder PHP 7,000, and the rest (PHP 3,000) will be shouldered by the insurance company.
How to Save Money on Participation Fees
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
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
where accidents happen (and this is a sad fact), a lower deductible may be a better money option in the long run.
Still, the biggest determining factor is whether or not you have the funding 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 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.
(Photos from Freepik.com)