Buying a car is a difficult task, which becomes all the more complicated when you add insurance to the equation. In the Philippines, every car owner must get at least the Compulsory Third-Party Liability (CTPL) insurance; the rest is at the buyer's discretion.
Up until CTPL insurance, everything was under control and manageable. The real issue arises when you opt for the highly recommended Comprehensive insurance and other add-on coverage.
We say so because too many car insurance policies feel like a maze, especially with so many coverage options and complicated terms. Talking about the latter, on top of our list is the participation fee, deductible, and depreciation fee. In this article, we have tried to break down these three important terms, which are closely associated with the insurance cost you bear while making a claim.
It doesn’t matter if you are a first-time car owner or a long-time driver; understanding what you are paying for is a good idea. So, continue reading..
Car insurance & Filipino car owners - An eternal connection
It might sound funny or a bit over the line to some, but in reality, the two are incomplete without each other. So much so that a Filipino can not drive his/her car legally on the public roads without a car insurance policy. Why so?
Well, that’s because car insurance helps ensure the safety of other car drivers and pedestrians. It protects the car owner from the high cost of car repair due to an accident or natural disaster; further, it also compensates for theft, which is a pretty significant loss.
Below we have listed a few more benefits of car insurance -
- Offers personal accident coverage to the driver and passengers
- Pays for car repair and replacement of parts
- Covers damage against fire, flood, and collision
- Covers third-party liability
- Offers drivers roadside assistance and towing service
Car insurance participation fee - Understanding the basics
Meaning: Participation fee is the amount of money a policyholder pays to his/her insurance provider whenever a claim is made. Yes, it is usually a prerequisite for most car insurance claims.
Logic: The most common reason the participation fee is charged is that insurance providers want policyholders to contribute to the cost/expenses related to car repair or damage.
Importance/Need: The participation fee is essential because it makes drivers liable for their mistakes (accident/vehicle damage). Further, it discourages them from committing fraud while filing a claim and abusing the insurance policy by making claims for even the smallest damage.
Things to remember: If you are looking for a perfect-fit car insurance policy that offers optimum coverage and is within budget. Try looking beyond premium and consider other fees like the participation fee as well. Look for insurance providers with low participation fees but the best coverage.
Participation fees inclusion
Participation fees include both deductible fees and depreciation rate, both of which are deducted from the claim settlement. Here’s a detailed breakdown of each.
Photo from FreepikCar insurance deductible fee
What is a deductible fee, and when is it charged?
Deductible fee is the amount a policyholder pays to the insurer against every filed claim. Further, not all policies need to have deductibles; however, the amount depends on the car insurance coverage. For instance, you have to pay the deductible fee in the following coverage claim -
- Comprehensive
- Theft
- Collision
- Personal injury protection
- Own damage
Did you know? One of the many ways to reduce insurance premiums is to opt for higher deductible fees, which reassures the insurance company about the policyholder's intention.
Who pays and what?
The deductible fee comes into play when the policyholder is at fault in a car accident. It is this fee amount from where the vehicle repair expense will come from, so basically the policyholder pays it all from his/her pocket. Anything above that will be taken care of by the insurance company.
What if the policyholder is not at fault? In that case, the insurance company reimburses for the repairs and damages.
Deductible fee for private car insurance?
The standard car insurance deductible for private cars in the Philippines is either 0.5% of the vehicle’s fair market value or PHP 2,000, whichever is higher. So, the calculation is simple, just multiply the vehicle’s insured value by 0.5%; if it is higher than PHP 2000, it will be your fee.
Example - If the private car is insured for PHP 2,000,000, its deductible fee would be -
0.5% X PHP 2,00,000 = PHP 10,000.
Car insurance depreciation fee
It is a fact that a vehicle wears out over time and its value decreases; this decrease in value is referred to as depreciation. Coming to the depreciation fee, it is a certain amount a policyholder pays when buying new parts or replacing old ones.
In simple words, the depreciation fee is used for paying the difference in the value of vehicle parts - original value vs. value at the time of replacement.
What factors are considered when determining the depreciation fee? Insurance providers usually consider the vehicle's age and depreciated value while calculating this fee. However, it should be noted that the vehicle is at least over three years old to be eligible for this type of fee.
Usage? A part of this payment is used for buying new parts if the original ones are damaged. Therefore, if no part needs to be replaced, no depreciation fee is charged.
How to calculate? It is quite simple, just multiply the total cost of part replacements by the corresponding depreciation rate (as mentioned in your car insurance policy).
Example - If PHP 20,000 is spent on the purchase of new parts, and the vehicle is over 3 years but less than 4 years old. The depreciation fee would be: 20% x PHP 20,000 = PHP 4,000.
Computation of the car insurance participation fee
The policyholder must pay the participation fee to his/her insurer each time a claim is filed for damage to the vehicle. It is only when the participation fee is paid that the insurer covers the remaining claim. In the Philippines, the minimum participation fee for private cars is at least PHP 2,000.
The participation fee is calculated by simply adding the deductible fee and depreciation fee, i.e.,
Participation fee = Deductible fee + Depreciation fee
Example - If the deductible fee is PHP 20,000 and the depreciation fee is PHP 4,000, the participation fee is PHP 24,000.
Photo from FreePressDon’t forget to ask these questions
Before signing the car insurance policy, make it a point to clear all doubts and ask these questions to get some insights.
- Are there any hidden charges during the claim?
- What is the participation fee & how to calculate it?
- How much depreciation is calculated for my car?
Save money with these tips
- Wanna keep the participation fee low? Go for a policy that offers a fixed deductible fee; however, this leads to a higher premium.
- Opt for lower deductibles if you travel along roads prone to accidents or congested.
- Opt for higher deductibles for a lower monthly premium.
- In case of an accident, if you are not at fault, go for CTPL insurance and avoid paying participation fees.
- Instead of buying new parts, look for surplus parts (e.g., parts from used or second-hand vehicles) to avoid depreciation fees.
- Don’t claim if your participation fee is higher than the car repair cost.
Bottom line
If you are a car insurance aspirant in the Philippines, it is essential first to understand the basics of insurance. This will allow you to enjoy freedom from financial stress and bring you immense peace of mind. One such important concept related to insurance is that of the participation fee, deductibles and depreciation fee. By knowing what they are and how they affect your claim, the policyholder can make smart and confident decisions.
Here we’d suggest that you always read the insurance policy’s fineprint, ask as many questions as you like, and go for a policy that best suits your needs and budget.
FAQs
Q1.)What is a participation fee?
Ans. It is the amount of money billed by the insurance company whenever its client files a claim.
Q2.)What if my insurance claim gets denied? Will I get back the participation fee?
Ans. The participation fee is only paid when the claim gets approved and repairs are to be made under the policy. So, the denied claim needs no participation fee.
Q3.)Is the participation fee a one-time thing or needs to be paid every time the claim is filed?
Ans. The policyholder is required to pay a participation fee each time he/she files an insurance claim.
Q4.)Is the depreciation fee non-negotiable?
Ans.Yes. Most insurance policies include a depreciation fee that a policyholder must pay to proceed with the claim. Note, this fee is based on the vehicle’s age and type of parts.
Q5.)Does the participation fee vary with the type of damage?
Ans. The participation fee is influenced by the cost of repair/replacement. Usually, the fee is pretty high in cases of theft, acts of god, and collision damage.
Q6.)What is the difference between a participation fee and an insurance premium?
Ans. While an insurance premium is the amount paid by the policyholder to keep the policy active, a participation fee is the cost the policyholder pays to claim damages and/or repair.
Q7.)Is it possible to reduce participation or depreciation cost?
Ans. Yes, given that you opt for a policy with a higher premium but with lower out-of-pocket fees, go for insurance providers with a fixed participation fee, or choose a policy with zero depreciation for new cars.
Q8.)Are there any insurance providers with low participation fees?
Ans. Insurance providers like FPG Car Insurance, Prudential Car Insurance, and Mercantile Car Insurance are known to offer policies with low participation fees.
