Cedric Stephens, Contributor

Question: I am a very young professional. Iam planning to start driving lessons soon. My options are: Should I invest in further education; or, should I buy a motor car at the end of 2007? Can you provide me with details of motor vehicle insurance for a new driver? Should I buy comprehensive or third party insurance?

- farisha _anderson@yahoo.com.

Answer: My answer to your first question has its origin in a photo. It is hung in the waiting area of my barbershop. In the foreground are three top-of-the-line motor cars. They include a Lamborghini and a Porsche.

To one side is parked a helicopter. A beautiful, architect-designed house lies in the background. The photo caption says: "Four years of college education ... " I know very little about the science and art of investing. However, I am quite certain that a motor vehicle will not produce a higher rate of return than an investment in education.

Motor Insurance Basics

Three years ago, I wrote a piece titled "Motor vehicle insurance basics for first-timers." I will use it as the template to answer your other questions.

The demand for motor insurance is driven by law. The law is The Motor Vehicles Insurance (Third-Party Risks) Act. It went into operation nearly 70 years ago. Many changes have been made to it since.

The law set up a system to compensate persons who suffered injuries or whose property was damaged (third parties) as a result of accidents on public roads. Vehicles operating on public roadways are required to have insurance. Owners who do not comply are liable for prosecution. Insurers and the policies that they sell operate within that law.

Many persons are unaware that this law is like the Minimum Wage Law in one respect. The monetary limits in them are minimum amounts. That is, in the case of the Minimum Wage Law, the prescribed wage (with apologies to columnist Martin Henry) is the lowest amount that can be legally paid to an employee.

In the case of motor insurance, the limits stated in the act are also the minimum. An injured person can make aclaim for more than what the law states. Many insurance buyers fail to understand this. Claimants often demand and get more than 10 times the amounts in the act as compensation - not unlike what happens in relation to wages.

'Comprehensive' insurance was invented by insurers. This act mentions third-party risks insurance. The label given by insurers describes coverage that is wider than what is required by law. The use of that word misled many persons. Buyers assumed that a comprehensive policy covered everything. That is, of course, not true. It provides, among other things, accidental (or collision) damage coverage to the motor vehicle.

Other types of losses caused by fire and theft, earthquake, hurricane and flood are also included. Finally, it also provides protection against claims made by third parties, as the law requires. A third-party policy, on the other hand, excludes physical damage to the vehicle.

Insurers Discriminate Against Youngsters

Insurers penalise young drivers. This is because statistics say that they are more likely to be involved in accidents. Persons under 21 years and who have been driving for less than 12 months fall into this group.

The penalty can take two forms: higher premiums and deductibles (or excesses). Young drivers sometimes pay as much 100 per cent more in premium than a mature driver. A young driver would pay $15 to $20 for each $100 of estimated value of the vehicle for comprehensive insurance. When a young driver buys comprehensive insurance, he or she, may have to pay $200 to $250 for every $1,000 (the excess or deductible) to repair any damage to the vehicle. An older driver, on the other hand, would only pay $50.

Comprehensive coverage costs more than third-party insurance. One way you can save money is to fund the vehicle purchase with savings. Do not use all of your capital. Buy an older vehicle in good condition. If you get a loan and use the vehicle as collateral, the bank or credit union will ask for the more expensive coverage.

Budget a minimum of $25,000 for third insurance. You can hedge some of the risks by adding third-party fire and theft coverage.

Other strategies to save money include: