Question: I am a 23-year old UTech graduate. I work in a hotel on the north coast. Since last year I have been saving to buy my first car. I intend to purchase it within the next few months. The funds will come from a mix of savings and a loan from my credit union. I know that I will need to insure the car. Can you tell me what a first-time buyer like me should know about motor insurance? My friends tell me drivers in my age group pay more than other persons. Is there anything that I can do to reduce the premium that I will have to pay?
- T.R., Oracabessa P.O., St. Mary.
Answer: In spite of all the problems in the educational system, you seem to have benefited from your stay at UTech. You have approached motor insurance in a planned manner. Most persons do not do so. They do little or no planning. As a result, they end up making wrong decisions. The effects of wrong choices usually come to light when there is a claim. By then, it is far too late to resolve that issue. What gone bad in the morning can't come good in the evening. In the end insurance ends up getting a lousy name. Motor insurance is required by law. Thus, says The Motor Vehicles Insurance [Third-Party Risks] Act. This is what has made motor insurance in Jamaica into a multi-billion dollar industry. Vehicles that operate on the public roadways are bound to have insurance. The aim of the law is to ensure that there is a system in place to pay the victims of road accidents. Owners and drivers of vehicles need to have coverage for at least the amounts stated in the Act. Persons who disobey the law are subject to prosecution.
There are 12 companies that offer motor insurance. Consumers like you have lots of choices. Do not buy coverage based solely on price. You could end up paying more. Less than 10 years ago hundreds of persons went to an insurer called VCI. That company offered very low rates. It went down the tubes in a very short time. Customers were forced to buy insurance elsewhere and many claimants went unpaid.
BROKER
One way to get a good deal is to buy coverage through a broker. These companies are in business to make things easier for you. They do this by shopping around to ensure that you get the best deal. Select your broker with care. You will know that you have chosen wisely if they present you with quotations from at least three insurers, analyse the differences between them and recommend what you should buy. If you only get one quotation this is a sign that the brokers have not done their homework.
Motor policies tend to be similar. This is because they have to comply with the law. Note, however, that the law only deals with the minimum. Policies can therefore vary in many ways. Limits of liability for personal injuries are one. Property damage limits are another. The former can be $2.5 million for any one person and $5 million any one accident. They may seem OK but are inadequate based on court awards.
The local Supreme Court awarded $5.5 million to a garbage collector recently who lost both legs in an accident. The property damage limit should be at least $5 million for any one accident. Since you plan to buy a car with loan financing from your credit union you will need 'comprehensive' insurance. This provides the liability coverage required by law plus damage to the car by accident. The damage section of the insurance would protect you and the credit union if the vehicle were to be stolen, damaged by fire or was hit by another vehicle. In this sense, 'comprehensive' means collision damage coverage plus liability. Tips to save money:
Do not lend your car to friends. They may not drive as carefully as you do and may cause accidents. If this happens you will have to pay the first part of any damage claim, which could run in thousands of dollars. It would also cause you to pay more in premiums for many years.
Drive safely and avoid road traffic violations, which could lead to increases in your premium.
Consider the merits of increasing the deductible under your policy in exchange for a discount off your premiums.
Some employers sponsor group motor insurance plans for their employees at discounted rates. Investigate whether your employers offer this benefit and check out if it is worth your while to participate.
When selecting your car pay attention to the cost of insurance. Insurers tend to charge more for some types of cars than others.
Finally, you can visit the websites of some of the local insurers, if you need more information.
Cedric E. Stephens provides free, impartial advice on risks and insurance. If you need free information or advice to solve a problem, write to The Financial Editor, or, contact Mr. Stephens directly at aegis@cwjamaica.com
March 4, 2004.
