San José, Costa Rica, since 1956

Rationalize Auto Insurance Expense

“OBLIGATORYAutoInsurance,” alsoknown by itsSpanish initials,SOA, has a premiumpainlesslytacked onto theroad tax paymentyou make everyDecember in orderto get your windshieldsticker(marchamo) forthe following year.The SOA covers personal liability – itpays if you hurt, kill, or maim a third partywith your car – but the amount of coverageis so grossly insufficient that I recommendyou consider SOA as just another tax. Youhave no control in reducing the premium,because it’s determined by superior knowledge,anyway!The cost of supplementary auto insuranceis the point of this article. Several factorsare taken into account to determine thepremium:IS the car owned by an individual orby a corporation? Auto insurance shouldbe in the name of the legal owner of thevehicle, as appears in the NationalRegistry. Auto liability is cheaper (not bymuch) for cars and pickups owned by individuals,compared to vehicles owned bycorporations.AUTO Liability: How much coverage?In general terms, buy as much liabilityas the National Insurance Institute(INS) allows your agent to sell you. Therationale: the amount of insurance is determinedin an inflationary currency, thecolón. For example, if you were to wipeout a cyclist today, it would probably bethree-five years before the courts wouldfind you guilty and sentence you to indemnify(via INS) the cyclist’s bereaved family,and they would determine the awardbased on the purchasing power of the colónat the time of sentencing. As you have nocontrol over what inflation will do to thecolón over time, get as much auto liabilitycoverage as you can – it is cheap, anyway– as you don’t want to be underinsured atthe time an award has to be paid.The cost of direct damage coverage foryour car (collision, overturning, theft, fire,etc) is based on two things: which coveragesyou want and the value of your car.WHICH coverages: There is no hardand fast rule. I have had clients with a verydecent-looking Mercedes or BMW tell methat they only want liability, because if “thatold thing” were totaled or stolen they’d justgo out and buy another one – like changingshoelaces! I also remember a poor brotherwith an elderly Volkswagen Bug whobought full coverage, and I realized that ifhis car were lost, he’d have to save his penniesfor two-three years before he could buya replacement. So remember the old insurancerule – insure against events, which, ifthey were to happen, you would find yourselfhard pressed, financially, to overcome.VALUE of your car: There is no official“Blue Book.” INS says that you, theowner, must determine the value at whichto insure your car, and instructs you to baseit on market value. (The Costa Rican market,of course.) If you recently bought thecar, no problem, you paid the market price.But if you imported a used car or have hadyour car in Costa Rica for some time, thenwhat? You can look up values in ads forsimilar cars in the classified section of LaNación and shave a tad off, as peoplealways advertise their cars for more thanthey are hoping to get! Or you can ask yourfriendly insurance agent, who has a computerized“advisory” list of values of vehicles.(This list, a tool recently provided byINS, is not infallible, but it’s pretty goodmost of the time.) Another resource is theInternet: check we come to the nitty-gritty. Theonly one who can change the insured valueof your car is YOU, dear reader. Your agentcan’t do it and INS won’t do it – withoutyour signature on the appropriate form. Soif you realize that your car is insured for avalue greater than market, get in touch withyour agent. Policies can be modified anytime except when they are in the graceperiod for the renewal, so try to time thechanges nicely – just before renewal time –because getting premium money back fromINS will bring grey hairs to all concerned.NO-claims bonuses. These are in incrementsof 5% every six months. Rememberthat INS auto insurance goes in six-month“bytes.” For the first four 6-month periods,you get no bonus. The premium for the fifthsix-month period should reflect a 5% discountor bonus. The sixth premium shouldhave a 10% discount, and so on. No-claimsbonuses peak at 40%. If you have a claim,INS may reduce your bonus, eliminate italtogether or – in extreme cases – apply asurcharge for reckless driving. The nittygrittyonce again: check your premium, asINS doesn’t always do a good job of applyingthe bonuses, and doesn’t provide youragent with the means of checking up onthem wholesale.Contact David Garrett at 233-2455 The purpose isto give the reader a better understanding ofinsurance in Costa Rica. The opinions andviewpoints expressed are those of thewriter and do not necessarily represent theofficial position of the National InsuranceInstitute (INS).

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