By Cedric E. Stephens, Contributor 
QUESTION: I am planning to buy my first car next month. I will be funding the purchase with my savings and a small bank loan. I know nothing about motor insurance. Can you please explain it to me? I would like to avoid some of the problems encountered by your other readers.
- J.R., Kingston 7.
Answer: It is always prudent to close the gate before the horse runs away. Many of us fail to put this saying into practice. The results of this can be quite bizarre. Consider some of those who buy expensive, top of the line 'name brand' luxury European cars - 'krissas' in the local idiom - and say that they cannot afford comprehensive motor insurance. One would have thought that the fixed costs of owning one of these 'wheels' would figure in the decision-making. But no, this kind of reasoning does nothing for over-sized egos!
The type of car you buy determines the amount you pay for motor insurance. The premium for a sedate saloon is less than a high performance sports car. Insurers consider certain makes and models of vehicles as 'high risk'. The premiums for vehicles in this class tend to be higher than those of 'average risk'. Premiums can be as much as 25 per cent more than those of 'average risk'. The extra premium adds up over several years. If you want to save money, make sure that the car you buy is an 'average risk'. Check around (or ask you broker or agent to do so) to find out the cost of insurance before deciding which vehicle you purchase.
THIRD PARTY INSURANCE
Let us now take a look at the typical motor policy or contract. What is called 'comprehensive' is actually a group of different coverages. By the way, remember that 'comprehensive' is a misnomer. That kind of policy covers many things - not everything, as the name suggests. Third party liability is one of those things. The Motor Vehicle Insurance (Third Party Risks) Act says that all motor vehicles operating on the public roads should carry a minimum amount of liability insurance.
The law was designed to ensure that persons who suffer injuries get compensation. Liability coverage is the basis of motor policies in most countries. If you are at fault in an accident, your liability insurance is triggered. It will pay for bodily injury and property damage to third parties including legal expenses. Bodily injury expenses may include medical bills, lost wages and pain and suffering. Property damage expenses pay for the repair or replacement of things you wrecked. Bear in mind that liability insurance coverage is not open-ended. It is limited.
You could end up being required to pay third parties that portion of their claim that exceeds your policy limit. It is therefore a very good idea to find out what the limits are under the liability section of your policy. Buy more protection than the law requires, if you wish to sleep well.
COLLISION OR OWN DAMAGE
Liability insurance mandated by the law is quite limited. It provides no protection when a vehicle is stolen, destroyed by fire or damaged in a collision. When a vehicle owner opts not to buy collision or own damage insurance, he will have to fund any repair costs himself. Failing this, he will have to try to collect from the third party, assuming the latter was at fault. Getting compensation from a third party often seems like a lottery. Many persons operate their vehicles without any form of insurance. One in every three vehicles on our roads is likely not insured. Buying collision damage is a means of pre-funding the repair or replacement of your vehicle.
Collision damage coverage tends to be the most expensive part of a 'comprehensive' policy. In an effort to keep that cost down, some kinds of collision damage losses are subject to an excess or deductible. This means that the insured pays a fixed amount of each claim. This could represent between five to ten per cent of the estimated value of the vehicle. The insurer would then pay the other 90-95 per cent. If insurance covered the first dollar there would be less incentive for drivers to operate their vehicles with care and the price of the coverage would be much higher.
Finally, try to get a specimen copy of a policy and application (proposal) form. Ask someone in an insurance company (or agent or broker) to explain the nitty-gritty to you. This should provide you with a good idea what to expect and how to avoid common problems.
Cedric E. Stephens is an adviser on risks and insurance. If you need free information, write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com.
