Chapters 3-5 Credit PDF

CHAPTER 3: ASSESSING & SECURING purchases such as a home or a car. This CREDIT credit capacity allows individuals and families to avoid deferring large purchases TYPES OF CREDIT...

CHAPTER 3: ASSESSING & SECURING purchases such as a home or a car. This CREDIT credit capacity allows individuals and families to avoid deferring large purchases TYPES OF CREDIT until savings can be accumulated to make Credit can be classified as non installment, such purchases. Another advantage is that installment, or revolving open-end. credit eliminates the need for carrying cash or writing checks. Noninstallment Credit - Noninstallment credit is normally issued for a very short DISADVANTAGES OF USING CREDIT time, such as thirty days or less. It is provided by some retail stores to consumers There can be a high cost to using credit. who want to purchase products today and Access to credit can be a disadvantage need credit for a very short period of time. because it may result in: Excessive spending Installment Credit - Installment credit is A large accumulation of debt also provided for specific purchases, but the borrower has a longer time (such as a few Excessive Spending - The behavior of years) to repay the loan. Also referred to as some consumers is completely different an installment loan, interest is charged on when they pay with a credit card versus the amount borrowed, and monthly having to pull cash out of their wallet to payments of interest and principal must be make a payment. The credit card gives a made. Alternatively, monthly payments can feeling of freedom, as if it allows consumers be structured so that the borrower pays to avoid the cost of purchases. interest only until the maturity date, when the balance of the loan is due. Accumulation of Debt - Another disadvantage of credit cards is that they can Revolving Open-End Credit - Revolving cause some consumers to accumulate too open-end credit, such as credit cards, much debt. Some consumers frequently use allows consumers to borrow up to a credit cards for their purchases and pay the specified maximum amount (such as $1,000 minimum amount required each month. or $10,000). The credit limit is determined Consequently, their debt accumulates. This by the borrower’s income level, debt level, problem is made worse because of the high and credit payment history. The consumer interest rate they are paying on the balance can pay the entire amount that is borrowed owed. at the end of the month or pay a portion of the balance, and interest will be charged on CREDIT RIGHTS the remaining balance. The Equal Credit Opportunity Act prohibits creditors from denying credit due ADVANTAGES OF USING CREDIT to gender, age, race, national origin, religion, or marital status. It requires The appropriate use of credit helps you creditors to notify applicants within thirty build a good credit history. Only by using days of a credit application whether they will credit wisely can you create the capacity to receive credit. If credit is denied, creditors access credit in the future for large must explain the reason for the denial.  monthly payments for consumers during CREDIT HISTORY periods when they are unemployed. Your credit history is a record of how you have used credit, including whether CREDIT BUREAUS your payments have ever been late. If you Credit bureaus provide credit reports have a credit card or have obtained a bank that document your credit payment history. loan, perhaps to purchase a car, the amount Your credit report shows every time you and timing of your payments will be in your apply for credit, whether you pay your bills credit history. on time, whether you maintain balances on your accounts, and whether you pay late Even if you have never had a credit fees. It may also contain information about card or bank loan, you will have a credit public records such as bankruptcies and history if you have rented an apartment. You court judgments and identify inquiries made receive credit when you use utilities such as by various companies and potential water, electric power, and telephone employers about your credit rating. The services. The utility company extends credit three primary credit bureaus are Equifax, by providing a service, and you are billed at Experian, and TransUnion. the end of a period (such as one month). In this way, utility companies provide a form of Your credit report is very important short-term credit. To obtain this credit, you because it can determine whether you are normally must make an initial deposit at the able to obtain credit. It may also influence time the account is created. When you have the interest rate that you pay when you accounts with utility companies, you borrow money. The better your credit report, develop a credit history that documents how the lower the interest rate you are charged timely you are in paying your bills. You can for financing, and thus your interest establish a favorable credit history by payments to pay off loans will be lower. paying your utility bills on or before the due date. Credit Reports Provided by Credit CREDIT INSURANCE Bureaus Because access to credit is essential today, some consumers purchase credit 1. The report number and the date insurance to make sure they will be able to distinguish this report from other reports. keep making credit payments (and therefore 2. Identifying information such as your maintain their credit rating) under adverse name, your spouse’s name, your date of conditions. With credit insurance, an birth, your Social Security number, your insurance company will cover their monthly current and previous addresses, your credit payments if various conditions such occupation, and your current or previous as illness or unemployment occur. For employers appears in this section. instance, credit accident and health 3. Potentially negative information from insurance ensures monthly credit payments public records, such as bankruptcy filings for consumers during periods when they and tax liens, is included in your credit cannot work due to an accident or illness. report. Credit unemployment insurance ensures 4. If any unpaid accounts have been turned over to a collection agency, they will be listed in this part of the credit report. Note This factor is generally the least important, that the resolution is recorded as well. although people who have no credit cards 5. All your accounts, both open and closed, and few other types of credit are generally are listed on your credit report. The report considered higher risk than people who details when the accounts were opened, have several types of credit and use them how long they have been open, the highest responsibly. amount you have ever charged, and each account’s current status. It also shows how IDENTITY THEFT many late payments you have made and Identity theft occurs when any how late they were. individual, without your permission, uses 6. The inquiries section lists the companies such personal identifying information as that have requested your credit report. your Social Security number, driver’s license number, credit card account numbers, bank CREDIT SCORE account numbers, or any other information In addition to the credit report, each unique to you, including your name and credit bureau also calculates a credit score, date of birth, to obtain personal gain. which is a rating that indicates a person’s Criminals use stolen account numbers to creditworthiness. The rating reflects the empty your bank accounts or charge likelihood that an individual will be able to purchases to your credit cards. make payments on credit in a timely manner. THE COST OF IDENTITY THEFT The personal cost of identity theft is Lenders commonly assess the credit difficult to measure but easy to imagine, payment history provided by one or more beginning with the victim’s feeling of being credit bureaus when deciding whether to violated and the resulting insecurity. Identity extend a personal loan. For example, theft victims have been turned down for financial institutions may rely on this employment because of incorrect information when they decide whether to information found in background checks. approve your credit card application, They have been hounded for back taxes on provide you with a car loan, or provide you income they did not earn or receive, and with a home (mortgage) loan. Your credit their accounts have been turned over to score can also affect the interest rate that is collection agencies for nonpayment of quoted on the loan that you request. A high mortgages and student loans obtained by score could reduce your interest rate identity thieves. They have been refused substantially, which may translate into loans for which they would normally have savings of thousands of dollars in interest qualified, had their driver’s licenses expenses over time. revoked for violations they did not commit, and have been enrolled for welfare benefits. CREDIT MIX One identity theft victim was even listed on The use of different types of credit a birth certificate as the mother of a child makes up 10% of the FICO score on she didn’t bear. average. Types of credit include credit card loans, retail accounts, installment loans, Identity Theft Tactics mortgages, and finance company loans. Aside from hacked databases, identity theft obtaining personal information is most commonly results from lost or stolen pretexting. This occurs when wallets. However, many other tactics can be individuals access personal used to obtain your personal data. information under false pretenses. The pretexter may use information Shoulder Surfing - Shoulder surfing obtained from dumpster diving to occurs in public places where you gain information about the can be readily seen or heard by companies with which you do someone standing close. An business. example of shoulder surfing is someone standing near you in a When pretexting happens online, it is called hotel or other business phishing. A phisher sends an e-mail establishment and reading the message falsely claiming to be from a number off your credit card if it is left legitimate source that directs the recipient to lying on the counter for too long. a Website where he or she is then asked to update account information such as Dumpster Diving - As the name passwords, credit card numbers, bank implies, dumpster diving occurs account numbers, and Social Security when the identity thief goes through numbers. your trash. The identity thief is looking for things such as credit card A practice that is similar to phishing but receipts, which contain your credit reaches many more targets with a single card number, and preapproved effort is known as pharming. By credit card solicitations. They manipulating e-mail viruses and host files, contact the credit card company to pharmers redirect users, without their change the address and then obtain knowledge, from the legitimate commercial a card in your name. Other targets Web sites they thought they were visiting to include discarded information that bogus ones that look like the genuine sites. might contain your Social Security number or bank account numbers. Abusing Legitimate Access to Records - Other sources of data are Skimming and Shimming - the employees of places where you Skimming occurs when identity work, bank, go to the doctor, and thieves steal your credit or debit card shop. In many cases these number by copying the information employees have easy and legitimate contained in the magnetic strip on access to personal information that the card. Often, skimmers are can be used to steal your identity. employees in stores and restaurants who, when you are not looking, Crime Rings - In some cases, the swipe your card through a reader identity thieves may be part of a that captures and stores the data. well-organized crime ring that has systematically infiltrated corporations Pretexting, Phishing, and and financial institutions for the sole Pharming - Another method of  purpose of obtaining information to facilitate large-scale identity thefts. CREDIT CARDS & CONSUMER LOANS Violating Your Mailbox - A last Credit Cards source of information worth a. Advantages and Disadvantage of mentioning is your mailbox. Both Credit Cards incoming and outgoing mail may provide the information needed for Advantages of Credit Cards Credit cards your identity to be stolen. Outgoing offer three advantages. First, you can mail can provide credit card and purchase products and services without bank information if you leave letters carrying a large amount of cash or a in your mailbox for the postal carrier checkbook. Second, as long as you pay off to pick up. your balance each month, you receive free financing until the due date on your credit Identity Theft Insurance card statement. Third, you receive a Identity theft insurance can be monthly statement that contains a obtained as part of your homeowner’s or consolidated list of the purchases you made renter’s policy or as a stand-alone policy. with the credit card, which enables you to Some credit card issuers add identity theft keep track of your spending. In some cases, insurance as a cardholder benefit. When you receive an annual statement as well, obtaining identity theft insurance, low detailing expenses by category, which can deductibles, reimbursement for lost wages, be useful in preparing your income tax coverage for legal fees, and the cost return associated with the denial of credit are items to consider in your policy selection. Disadvantages of Credit Cards The main disadvantage of having a credit card is that Response to Identity Theft it allows you to make purchases that you cannot afford and should not make. It gives Contact the Police Contact your you the opportunity to spend beyond your local police or sheriff’s department, means. and insist that a report be written. Be sure to obtain a copy of the report b. Applying for a Credit Card for your files. When you apply for a credit card, potential Contact the FTC The Identity Theft creditors obtain information from you, and and Assumption Deterrence Act of from credit bureaus, so that they can assess 1998 designated the FTC to function your ability to repay credit. as a central clearinghouse for all identity theft complaints. 5 C’s of Credit When you apply for credit, Contact Credit Reporting financial institutions and other non-bank Companies Notify the major credit lenders use this framework called 5 C's of reporting companies, and request credit to evaluate the that a fraud alert be placed in your creditworthiness of a borrower, as well as file. An initial fraud alert will stay on the strength of an overall borrowing request your report for up to ninety days. ○ Character: Have you borrowed funds in Average Daily Balance Method For the past? Did you repay any previous loans each day in the billing period, the in a timely manner? credit card company takes your ○ Capacity: Based on your income and beginning balance at the start of the monthly obligation, will you be able to pay day and then subtracts any back the loan? payments made by you on that day ○ Condition: How do you intend to use the to determine the balance at the end money? of the day. Then, it determines the ○ Capital: Do you have any funds in the average daily balance at the end of form of savings or stocks that can be used if the day for every day in the billing necessary to cover future debt payments? period. ○ Collateral: Do you have any assets that can be used as collateral to secure the Previous Balance Method Under borrowed funds? (If you could not repay the previous balance method, your debt, you could sell these assets to interest is charged on the balance at obtain the funds needed to repay the the beginning of the new billing loans) period. c. Types of Credit Cards Adjusted Balance MethodUnder the adjusted balance method, Retail Credit Cards Retail (or interest is charged based on the proprietary) credit cards are issued balance at the end of the new billing under the name of a specific retail period. This method is most establishment. You can usually favorable for you because it applies obtain an application for a finance charges only to the proprietary card while paying for outstanding balance that was not products or services. paid off during the billing period Rewards Cards Some credit cards e. Regulation of Credit Cards offer unique perks to cardholders who frequently use that credit card. The Philippine Credit Card Industry Regulation Law (RA 10870) Balance Transfer Cards Balance transfer cards are related to rewards Republic Act No. 10870, or the cards in that they can help you save Philippine Credit Card Industry Regulation money. A balance transfer card Law, was enacted to regulate and oversee allows a consumer to transfer the the credit card industry in the Philippines. Its balance owed on an existing credit primary purpose is to protect consumers card to a new card to save money and promote responsible lending practices on interest. while ensuring the stability of the credit card sector. Here’s a brief overview of its key d. Repaying Credit provisions CONSUMER LOANS  CHAPTER 4: LIFE INSURANCE IN THE a. Sources of Consumer Loans PHILIPPINES Financial Institutions The most PREMATURE DEATH common source of financing for a personal loan is a financial Premature death can be defined as institution. Commercial banks, (1) the death of a family head with savings institutions, and credit outstanding unfulfilled financial obligations, unions provide personal loans. They or (2) the death of a person that creates pool the deposited funds that they negative business consequences. receive from savers to create loans Examples of unfulfilled obligations to a for borrowers. family include dependents to support, Family Members or Friends An children to educate, and a mortgage to pay alternative source of financing is one off. or more family members or friends. If In a business situation, premature they trust that you will repay the loan death may result in (1) the dissolution of the on time and in full, they may be business if a co-owner dies or (2) a willing to provide you with a loan that significant reduction in income if a key earns the same interest rate as their person dies. savings account. Costs of Premature Death Types of Consumer Loans First, The family loses their share of Car Loans - A car loan is a type of the deceased breadwinner's future earnings consumer loan specifically designed for forever. Second, Death incurs additional purchasing a vehicle, whether new or used expenses like funeral costs, uninsured medical bills, higher childcare costs, estate Student Loans - A student loan is a settlement costs, and other final expenses. financial product that helps students cover Third, Insufficient income is expected to the costs associated with education, such significantly impact some families' standard as books, and living expenses. These loans of living. Finally, Survivors experience are either provided by banks, government noneconomic costs like intense grief, loss of agencies, or educational institutions and are parental role models, and counseling for usually repaid after the student graduates or children finds employment Home Equity Loans - A home equity loan FINANCIAL IMPACT OF PREMATURE is a loan that allows homeowners to borrow DEATH ON DIFFERENT TYPES OF against the equity they have built up in their FAMILIES property. The loan amount is typically based on the difference between the home's Single People -. Premature death current market value and the outstanding of single people with no dependents mortgage balance to support or other financial obligations is not likely to create a financial problem for others. Other  than needing a modest amount of Blended Families - A blended life insurance for funeral expenses family is one in which a divorced and uninsured medical bills, this spouse with children remarries, and group does not need large amounts the new spouse has children. Also, of life insurance. additional children may be born after the remarriage. The need for life Single-Parent Families - Premature insurance on both family heads is death of the single parent can cause great. great economic insecurity for the surviving children. The need for Sandwiched Families - A large amounts of life insurance on sandwiched family is one in which a the family head is great. However, son or daughter with children many single parents, especially provides financial support or other female headed households, often services to one or both parents. have incomes below the poverty line Thus, the son or daughter is “sandwiched” between the younger Two-Income Earners with Children and older generations. A working - In two income families with spouse in a sandwiched family children, the death of one income needs a substantial amount of life earner can cause considerable insurance economic insecurity for the surviving family members, because both WHAT IS LIFE INSURANCE? incomes are necessary to maintain the family’s standard of living. Both In life insurance, the person who income earners need substantial purchased the policy and the insurance amounts of life insurance. Life provider enter into an agreement wherein insurance can replace the lost the insurer guarantees to pay a certain earnings if one family head dies amount of money in return for a premium, prematurely. regardless of the insured person's death or after an agreed-upon period of time. The Traditional Families - Traditional financial stability of the life insurance families are families in which only company is the only aspect that determines one parent is in the labor force, and how effective the protection is. the other parent stays at home to take care of dependent children. The TYPES OF LIFE INSURANCE working parent in the labor force needs substantial amounts of life From a generic viewpoint, life insurance. If the working spouse insurance policies can be classified as dies with an insufficient amount of either term insurance or cash-value life life insurance, the family may have insurance. Term insurance provides to adjust its standard of living temporary protection, whereas cash-value downward. life insurance has a savings component and builds cash values. Numerous variations and combinations of these two types of life Term to age 65 - Protection is offered by a insurance are available today. term-to-age 65 insurance until the policy's expiration date, which is 65. In order to 1. Term Insurance - Term insurance has change the policy to a permanent insurance several basic characteristics. First, the plan, the decision must be made earlier period of protection is temporary, such as 1, than reaching the age of 65. 5, 10, 20, or 30 years. Unless the policy is renewed, the protection expires at the end Decreasing term - It's a type of term of the period. Most term insurance policies insurance where the face value increasingly are renewable, which means the policy can drops every year. On the other hand, the be renewed for additional periods without premium remains constant all through time. evidence of insurability. Most term Some insurance plans consist of premiums insurance policies are also convertible that are set up to guarantee that the policy which means the term policy can be is paid in full for a few years previous to the exchanged for a cash-value policy without coverage's expiration. evidence of insurability. Reentry term - This type of term insurance Types of Term Insurance policy bases renewal premiums on particular (lower) death rates, provided the A wide variety of term insurance products policyholder can consistently provide are sold today. They include the following: sufficient proof of insurance eligibility. - Yearly renewable term Return of premium term insurance - This - 5-, 10-, 15-, 20-, 25-, or 30-year term product pays back payments at the - Term to age 65 expiration of the term as long as the - Decreasing term insurance remains in operation. - Reentry term 15–20–25–30 years is a typical time span. - Return of premium term insurance Depending on the insurer, if the insurance does not continue until the completion of the Yearly renewable term - insurance is time, a partial payment can be given issued for a one-year period, and the policyholder can renew for successive Uses of Term Insurance one-year periods to some stated age 1. Firstly, term insurance can be utilized without evidence of insurability. Premiums efficiently if the quantity of money available increase with age at each renewal date. for life insurance is limited. 2. Second, term insurance would be 5-, 10-, 15-, 20-, 25-, or 30-year term - appropriate for situations when protection Additionally, term insurance may be granted must for 5, 10, 15, 20, 25, or 30 years. The be provided temporarily. premiums paid are fixed for the duration of 3. Lastly, future insurability can be ensured the insurance, however they rise up when it with term insurance is renewable. Limitations of Term Insurance  The rates for term insurance rise whole-life insurance is a gradually with age until they become limited-payment policy. The insured expensive. is covered for life, and the insurance Term insurance is not the best option is constant. Even though they are for individuals who would like to paid for at specific times only, the save money for a particular purpose. costs of insurance remain stable. Cash values are not constructed Policies with limited payments for through term insurance plans. 10, 20, 25, or 30 years are the most typical. Limited-payment insurance 2. Whole Life Insurance - The term "whole can also take the form of a paid-up life insurance" implies a cash-value policy policy at age 65 or 70. With just one that offers flat premiums and lifelong premium, single-premium whole life protection. If premiums are due during the insurance offers lifelong protection, insured's lifetime, whole life insurance is making it an extreme type of known to be ordinary life insurance; if limited-payment life insurance. premiums are due over a shorter time frame than the insured's lifetime, it is known as 3. Endowment Insurance - A quick review limited payment life insurance. of endowment insurance is necessary since it is a past version of a. Ordinary Life Insurance - The traditional life insurance. In the scenario that level-premium policy known as the insured passes away within a certain ordinary life insurance develops up time frame, endowment insurance pays the cash values and offers lifelong face value of the policy; if the insured lives protection up to age 121. Premiums to the end of the endowment period, the are paid during the insured's lifetime, amount stated on the policy is given to the with the mortality table ending at age beneficiary immediately 121. At this stage, the original cost of insurance would be paid out if the OTHER TYPES OF LIFE INSURANCE insured lived to age 121, which is highly unlikely. 1. Modified Life Insurance A modified whole-life policy is a kind in which the rates There are several basic are higher after the first three to five years characteristics of ordinary life but less expensive all through the initial five insurance. First, premiums are fixed years. However it is significantly cheaper for the duration of the than a whole-life policy issued at the same premium-paying term. An additional age, the initial premium is more expensive characteristic is the accumulation of compared to the cost of term insurance. cash-surrender values or the amount of money given to a policyholder in Preferred Risks For those who exchange for the policy being are considered preferred risks—those submitted. whose lifetime experience is predicted to be below average—the majority of life insurers b. Limited-Payment Life Insurance provide insurance at lower fees. The - The alternative to ordinary insurance is properly underwritten and only available to those whose weight, industrial life insurance in its simplest form occupation, habits, and medical history has practically dissolved. reflect an improved than usual mortality rate. 6. Group Life Insurance An essential kind 2. Joint Life Insurance Often referred to as of insurance is group life insurance, which a first-to-die policy, joint life insurance is a offers life insurance to group members policy that is under a single master contract between the written on the lives of more than one insurer and the company individual and is paid out whenever a single or another organization's administrator. individual passes away. It can also be Certificates of insurance are given as proof applied to corporate purchase contracts of insurance, and physical tests are not involving several shareholders or influential considered necessary. A valuable employee owners. The insurance company only benefit, group life insurance serves an makes payments until the first individual important role in the overall amount of life passes away, at the time it expires. insurance in action. 3. Second-to-Die Life Insurance DETERMINING THE COST OF LIFE Survivorship life, also known as INSURANCE second-to-die life insurance, is a type of life insurance that protects two or more lives The cost of life insurance is a complex and pays out the benefit upon death subject. In general, cost can be viewed as immediately following the second or final the difference between what you pay for a insured passing away. Even though term life insurance policy and what you get back. insurance is an alternative, whole life If you pay premiums and get nothing back, insurance is generally recommended. If two the cost of the insurance equals the separate policies were established, the premiums paid. However, if you pay premiums would be significantly higher. This premiums and later get something back, is because the death profits are only paid such as the cash value and dividends, your after the second or last insured passes cost will be reduced. Thus, in determining away. the cost of life insurance, four major factors must be considered: (1) annual 4. Savings Bank Life Insurance Savings premiums, (2) cash values, (3) dividends, banks in Massachusetts, New York, and and (4) time value of money. Two cost Connecticut were the first to offer savings methods that consider some or all of the bank life insurance (SBLI). preceding factors are the traditional net cost method and the interest-adjusted 5. Home Service Life Insurance cost method. Although the following In earlier times, home service life insurance discussion is based on cash-value life evolved from being a general kind of life insurance, the same cost methods can be insurance known as industrial life insurance. used to determine the cost of term With home service life insurance (also insurance. known as monthly debit ordinary), which often does not gather payments at home, Two Cost Method in Life Insurance A. Traditional Net Cost Method beneficiary, borrow from cash value, The premium paid during the policy period or surrender the policy is added and the dividends receivable and Entire-contract clause - States that cash value of the policy at the end of the the policy and any attached policy period is subtracted to obtain the net application or riders represent the cost of insurance (Redja & McNamara, full agreement between the insurer 2021). The traditional method is simple, but and the policyholder, preventing it's not very reliable because it doesn't take modifications outside the contract. into account certain important factors. Incontestable clause - After a certain period (usually 2 years), the B. Interest-Adjusted Cost Method insurer cannot contest the policy Under this method, the time value of money based on misstatements made in the is taken into consideration by applying an application, except for cases like interest factor to each element of the cost fraud. calculation. To calculate the Suicide clause - States that if the interest-adjusted cost per year, you can insured commits suicide within two divide the insurance cost by the deposit years after the policy is made at the beginning of each year at a issued, the face amount of insurance given interest rate. There are two principal will not be paid; there is only a types of interest-adjusted cost indexes refund of the premiums paid. Grace period provision - A life Surrender Cost Index Measures insurance policy also contains a the cost of life insurance if you grace period during which the surrender the policy at the end of policyholder has a period of 31 days some time period, such as 10 or 20 to pay an overdue premium. years, and takes compound interest into account. VARIATIONS OF WHOLE LIFE INSURANCE Net Payment Cost Index Measures the relative cost of a policy if death Variable life insurance occurs at the end of some specified Universal life insurance time period, such as 10 or 20 years. Indexed universal life insurance It is based on the assumption that Variable universal life insurance you will not surrender the policy Current assumption whole life insurance and other “interest CONTENTS OF A LIFE INSURANCE sensitive” products POLICY Variable Life Insurance - It is a type of Ownership clause - The fixed-premium policy where the death policyholder possesses all benefit and cash value change based on the contractual rights in the policy while investment performance of a separate the insured is living. Specifies who account, comparable to a mutual fund has ownership rights over the policy, managed by the insurer. Both the death including the right to change the benefit and cash surrender value can rise or fall depending on this investment Third, the formula for additional experience. Despite various policy interest credits often has an upper cap and structures, variable life insurance typically may limit the participation rate in market shares these common features: nd gains to less than 100%. Due to this, cannot be increased. indexed policies may underperform during times of weak market activity compared to Universal Life Insurance - It is also known regular universal life insurance. as flexible premium life insurance, is another significant form of whole life Variable Universal Life Insurance - It is a insurance. It is a flexible premium policy that notable variation of whole life insurance separates the insurance protection and often marketed as an investment or savings elements. Apart from the initial tax-saving tool. It resembles universal life premium, the policyholder decides on insurance with two main differences: payment amounts and schedules. Premiums, after specific expense Policyholders control premium deductions, are added to a cash value or investments, offering substantial accumulation account, which covers flexibility. monthly mortality There is no guaranteed minimum interest rate or cash value, although Universal life insurance has distinct a fixed-income account within the characteristics, including: policy may guarantee a minimum interest rate for that portion. Separation of the protection and savings components Current Assumption Whole Life Two types of universal life insurance Insurance and Other Interest-Sensitive High flexibility Products - Following the 2008 financial Options for cash withdrawals crisis, the Federal Reserve maintained Favorable tax treatment historically low-interest rates to boost the economy. When interest rates are more Indexed Universal Life Insurance - It is a typical or form of universal life insurance with specific fluctuating, consumers often prefer products features. First, it comes with a with current interest rate returns. While minimum guaranteed interest rate, which is participating policies and various types of generally lower than that of a standard universal and variable life insurance meet universal life policy. this need to some degree, insurers have also introduced other products to attract Second, the policy can accrue consumers. additional interest based on the performance of a particular stock market For instance, current assumption index, such as the S&P 500. Most index whole life insurance is a nonparticipating accounts calculate performance using only policy where premiums and policy values index price returns, not including stock are determined by the insurer’s current dividends. experiences with mortality, investments, and expenses. Another example, "vanishing premium life" insurance, was once sold with companies that provide a range of projections suggesting the policy would be options, including term life. paid up if non-guaranteed interest rates were met. Premium Costs Comparing premium rates among different SELECTING A LIFE INSURANCE insurers is crucial for finding COMPANY affordable coverage that meets your needs. Use online tools and When choosing a life insurance company, calculators to estimate premiums it's essential to evaluate several key based on your age, health, and factors to ensure you make an informed coverage amount. you receive decision. Here are five critical aspects to adequate protection without straining Consider: your budget. Financial Strength The financial Licensing and Regulation stability of an insurance company is Licensing and regulation are paramount, as it indicates their fundamental aspects when choosing ability to pay claims. A financially a life insurance company. sound company provides peace of mind knowing your beneficiaries will CHAPTER 5: AUTO INSURANCE IN THE be taken care of. PHILIPPINES Claim Settlement Ratio (CSR) The The Personal Auto Policy (PAP), revised Claim Settlement Ratio is a vital in 2018 by the Insurance Services Office metric that reflects how effectively (ISO), outlines key provisions and changes an insurer handles claims. It is for personal auto insurance. The updated calculated by dividing the number of policy includes new exclusions for car claims settled by the total number of sharing and transportation network claims filed. A higher CSR indicates platforms (e.g., Uber, Lyft) that were that the company has a good track previously addressed through record in settling claims, which is endorsements. The policy applies to various crucial for policyholders. eligible vehicles and defines different scenarios under which autos are covered. It Customer Satisfaction Customer is a significant component of personal risk satisfaction ratings provide insight management programs. into the overall experience policyholders have with an insurance Key Features of the 2018 PAP company. Eligible Vehicles Four-wheeled motor vehicles owned Policy Options and Flexibility It's or leased by the insured for six or important to evaluate the variety of more continuous months qualify for life insurance products offered by coverage. potential insurers. Look for Includes private passenger autos, station wagons, sport utility vehicles,  and some vans or pickups (if certain No. 612, all motor vehicle owners conditions are met). must secure CTPL insurance. Definition of Covered Autos Scope of Coverage: Four categories of vehicles are ○ Covers medical expenses, considered covered: injury, or death of third Vehicles listed in the declarations: parties. Autos explicitly listed on the policy's ○ Does not cover damages to declarations page. the insured vehicle or the Newly acquired autos: Coverage policyholder's medical starts immediately upon ownership expenses. but requires notification to the Purpose: Protect third parties and insurer within 14 days (or four days if ensure compensation in the event of no collision coverage is present on accidents. other listed vehicles). Trailers owned by the insured: CTPL highlights the differences in Covers trailers towed by an insured regulatory requirements between the U.S. auto. (PAP) and the Philippines, emphasizing Temporary substitute vehicles: third-party liability for Philippine motorists. Non-owned vehicles temporarily used due to repair or loss of a Part A: Liability Coverage covered auto. Liability coverage protects the The PAP includes six major parts: insured from lawsuits or claims 1. Part A: Liability Coverage related to the ownership or operation 2. Part B: Medical Payments Coverage of a covered vehicle. It ensures 3. PartC:Uninsured Motorists Coverage 4. Part D: Coverage for Damage to financial protection if an accident Your Auto involving the insured vehicle results 5. Part E: Duties After an Accident or in harm to others, providing Loss compensation for damages or 6. Part F: General Provisions injuries to third parties. CTPL is a mandatory insurance Philippine Setting: Compulsory required by the Land Transportation Third-Party Liability (CTPL) Office (LTO) for all vehicle owners in the Philippines. It is the most basic In the Philippines, CTPL is a mandatory and affordable form of auto auto insurance policy required by the Land insurance. Transportation Office (LTO). It ensures Covers liability for injury or death of financial protection for third parties who third parties (non-passengers) suffer bodily injury or death due to accidents caused by the insured vehicle. involving the insured vehicle. Key points Does not cover the policyholder's include: bodily injuries, vehicle damage, or Mandated by Law: Based on RA passenger injuries. No. 4136 and Presidential Decree Liability to the Public Coverage and Benefits The CTPL policy, with a coverage limit of The insured while personally driving ₱100,000 for all vehicle types, provides a private motor vehicle that does not financial protection for third-party claims in belong to them and is not under a case of accidents caused by the insured hire purchase agreement (BDO, vehicle. It covers: n.d.). 1. Motor Vehicle Death indemnity: Includes burial and As defined in Section Three, funeral expenses. paragraph (a) of Republic Act No. Bodily injuries and fractures. 4136 (Land Transportation and Permanent disablement. Traffic Code), a motor vehicle refers to any vehicle: The insurer pays for liabilities determined Propelled by power other than against the insured, covering bodily injury muscular power. and/or death of third parties. This excludes Using public highways. moral, exemplary, incidental damages, 2. Exceptions: expenses, and loss of income. The Road rollers, trolley cars, maximum coverage per occurrence is street-sweepers, sprinklers, lawn ₱100,000, regardless of the number of mowers, bulldozers, graders, claims. fork-lifts, amphibian trucks, cranes (if not used on public highways). For PUVs: Vehicles that run only on rails or ○ ₱100,000 total death benefit tracks. for passenger-victims. Tractors, trailers, and traction ○ ₱100,000 for third-party engines used exclusively for victims. agricultural purposes. For private vehicles: 3. Third-Party ○ ₱100,000 for third-party A third-party is: Any person other victims only. than a passenger as defined by law. ○ Under the "no-fault" clause, third-party victims can claim Does not include: up to ₱15,000 without proving negligence. Members of the household. Total reimbursable fees are capped Family members within the second at ₱100,000 per year for third-party degree of consanguinity or affinity of liability, as per the indemnity the vehicle owner. schedule. Employees of the vehicle owner if Provides annual coverage for the injury, death, or property damage accidental death or bodily injury of arises during the course of third parties due to the negligence or employment. fault of the insured or an authorized driver. Authorized Driver The policy allows driving by: Insured Persons For private cars, coverage applies to: 1. The insured.  2. Any individual driving with the Vehicle Damage - No coverage is insured's permission or on their provided for damages to the insured order, provided: vehicle. Repairs must be paid They hold a valid license in out-of-pocket or through compliance with regulations or were comprehensive insurance. previously licensed (including Policyholder and Passenger expired licenses at the time of the Protection - CTPL does not cover accident). the medical expenses, death, or They are not disqualified by law or disability of the policyholder or court order. passengers in the insured vehicle. Limited Financial Compensation - Coverage Compensation is capped by law and CTPL covers third-party bodily injuries and may not fully cover severe accident fatalities: costs, leaving the policyholder responsible for any excess 1. Bodily Injury: Covers medical expenses. expenses (e.g., hospital bills, Theft or Fire - Losses due to vehicle medications) for injured third parties. theft, fire, or vandalism are not 2. Death: Provides financial covered. CTPL only insures against compensation to the deceased's third-party bodily injuries or death. family for funeral expenses and financial relief. Limitations of Liability 3. Legal Liabilities: Ensures claims CTPL is limited to: and settlements for third-party injuries or deaths are handled by the Social, domestic, pleasure, or insurer. insured business/professional use. It excludes: Exclusions 1. Use for hauling logs, sand, gravel, or other inflammable materials. Unauthorized Drivers - Accidents 2. Use for racing, reliability trials, or or liabilities involving individuals who speed testing. are not authorized drivers under the 3. Passenger carriage for hire or policy are not covered. reward. Sea Vessels and Inter-Island 4. Use related to motor trade activities. Transits - Incidents occurring on sea vessels during inter-island Part B: Medical Payments Coverage transits are excluded. Maritime insurance is required for such MedPay is an optional auto situations. insurance add-on that provides Employee Coverage - CTPL does financial assistance for medical not cover bodily injury or fatalities of expenses resulting from vehicular employees arising during their accidents. It covers the policyholder, course of work. Separate coverage passengers, and pedestrians, is necessary for such liabilities. regardless of fault, and applies to injuries sustained while in another  vehicle or as a pedestrian. This are encouraged to evaluate these coverage typically includes hospital options to ensure financial protection bills, doctor visits, and related against medical expenses in the treatment costs, easing the financial event of an accident. burden after accidents. In the Philippines, MedPay as a Part C: Uninsured Motorists Coverage standalone product is uncommon. Instead, similar coverage is offered Uninsured Motorists Coverage through personal accident insurance (UMC) is an optional auto insurance or hospitalization benefits bundled provision that provides financial with comprehensive auto insurance. protection for policyholders involved These policies provide in accidents caused by drivers who compensation for medical expenses are uninsured or underinsured. It is and accident-related costs, including particularly relevant in the injury or death. Philippines, where uninsured motorists are increasingly common. Examples of such products in the While UMC is not legally required, it Philippine market include: fills significant gaps in the mandatory Compulsory Third Party Liability Manulife’s 365 Ready Accident (CTPL) insurance, which covers only Plan: Coverage options range from third-party injuries or fatalities and Php25,000 to Php1 million, with excludes property damage or premiums starting at Php199 injuries to the policyholder and their annually. It includes accidental passengers. death, disablement, and double benefits for specific circumstances. UMC typically includes the following BPI-AIA Accident Guard 24/7: components: Offers up to Php2 million in coverage, including medical Bodily Injury Coverage: Covers reimbursement up to Php100,000. medical, hospitalization, and Premiums start at Php1,200 rehabilitation expenses, as well as annually. financial losses due to injuries Sun Life’s Personal Accident sustained by the policyholder or Armor: Provides up to Php50,000 passengers. It may also include coverage for accidental death or funeral expenses in case of dismemberment, with premiums fatalities. starting at Php60 annually. Property Damage Coverage: While not equivalent to MedPay, Covers the cost of vehicle repair or these options provide similar replacement if the at-fault driver is financial protection. As road uninsured or underinsured. accidents remain prevalent in the Hit-and-Run Incidents: Provides Philippines, comprehensive auto financial protection for damages or insurance with added personal injuries resulting from hit-and-run accident or hospitalization benefits is accidents, even if the responsible increasingly popular. Filipino drivers driver cannot be identified.  UMC is especially valuable given the vandalism, accident-related rising costs of medical treatment and liabilities, and malicious actions. vehicle repairs in the Philippines. Often referred to as Own Damage The prevalence of accidents Coverage, it is a more extensive involving uninsured drivers financial safeguard for vehicle underscores the importance of this owners. coverage as a financial safeguard. Filipino motorists are encouraged to Coverage Options evaluate their insurance options and consider adding UMC to their Under a comprehensive car insurance plan, policies. Although it entails additional coverage typically includes the following costs, the protection it provides optional components: against the financial consequences Collision Coverage: Protects of accidents caused by uninsured or against damage caused by a underinsured drivers is significant. collision with another vehicle or As vehicle ownership grows and the object. This coverage is only road network expands, UMC effective if explicitly stated on the becomes an increasingly critical policy’s declarations page. component of comprehensive auto insurance, offering essential The following are examples of a collision financial security and peace of mind loss: for Filipino drivers. You lose control of your car on a Part D: Coverage for Damage to Your slippery road, and it overturns. Auto Your car hits another car, a telephone pole, a tree, or a building. Coverage for damage to your auto - Accidents don’t always involve provides financial protection for other vehicles. Sometimes, you direct and accidental losses to a might collide with a stationary object. covered or non-owned vehicle, In such cases, your collision including equipment, subject to a coverage can be used to pay for the deductible repairs to your vehicle. In the Philippines, auto insurance is You park your car while shopping, primarily categorized into Compulsory Third and find the rear fender dented Party Liability (CTPL) and Comprehensive when you return. Car Insurance: You open your car door in a parking lot, and the door is damaged when it 1. CTPL: A mandatory policy that hits the vehicle parked next to you covers liabilities for bodily injury or Other-than-Collision death of third parties due to vehicle (Comprehensive) Coverage: accidents. Covers losses due to theft, 2. Comprehensive Car Insurance: vandalism, natural disasters, and Offers broader protection against other non-collision incidents. This damage, theft, natural disasters,  coverage is also only applicable if other-than-collision coverages typically listed in the declarations page. apply, but with certain conditions: Some examples of losses covered by 1. Excess Insurance: If the other-than-collision coverage are losses non-owned vehicle is insured, the caused by: policyholder's insurance will act as secondary (excess) coverage. This Missiles or falling objects means that if the borrowed vehicle Fire has its own coverage, the Theft or larceny policyholder's coverage only applies Explosion or earthquake after the borrowed vehicle’s Windstorm coverage has been exhausted. For Hail, water, or flood example, if Ellen borrows Mike's car, Malicious mischief or vandalism Ellen’s insurance will cover any Riot or civil commotion damages, but only after Mike’s Contact with a bird or animal insurance is used. Glass breakage 2. Regular Use Condition: Coverage applies only if the vehicle is not Policy Features furnished or made available for regular use by the policyholder or Single Deductible Application: If their family. The vehicle can be used two vehicles insured under the same occasionally, with permission, but if policy are damaged in a single it’s available regularly, coverage incident, only the higher deductible does not apply. The key factor is applies. whether the vehicle is made Flexibility: Policyholders can select available for regular use, not how and customize coverage options often it is used. based on their specific needs. 3. Temporary Substitute Vehicle: A temporary substitute vehicle is a non-owned vehicle that temporarily Non-owned Auto - is a vehicle that is not replaces a covered vehicle while it is owned by the policyholder or their family out of service (e.g., due to members, but which the policyholder may breakdown, repair, or destruction). operate or have custody of temporarily. The same coverages that apply to Examples include borrowed vehicles or the primary insured vehicle also rental cars. The vehicle can be a private extend to the temporary substitute passenger car, van, pickup, or trailer. vehicle. For example, if your car is being repaired and you are provided Coverage for Non-Owned Autos a loaner car, your insurance coverage will apply to the loaner If the policyholder (or a family member) vehicle. operates or has custody of a non-owned 4. Broadest Coverage: If a auto, the collision and policyholder owns multiple vehicles with different coverages (for  example, one with collision and car is damaged or stolen. This can other-than-collision, and another give peace of mind, especially when with only other-than-collision), the driving in unfamiliar areas or dealing broadest coverage on any vehicle with rental car damage. will apply to the non-owned vehicle. 2. Restrictions and Exclusions: So if one car is covered for both Despite the protection offered, the types of damage, that coverage will CDW comes with numerous extend to the borrowed or temporary restrictions: vehicle. It may not apply if you engage in reckless behavior, such as speeding Key Points to Remember or driving under the influence of alcohol or drugs. Excess Coverage: Your insurance It can also be voided if you drive on applies after the coverage of the unpaved roads or violate specific non-owned vehicle. terms outlined in the rental Regular Use Rule: Coverage agreement. applies only if the vehicle is not 3. Cost: The cost of purchasing a available for regular use. CDW is often an additional daily Temporary Vehicle: Coverage fee that can range from $15 to $20 extends to a temporary replacement or more, significantly increasing the vehicle while your primary car is out overall cost of your rental. of service. Broadest Coverage: If you own Do You Need the CDW? multiple vehicles with different coverage types, the best coverage In many cases, consumer experts suggest (e.g., collision and that you may not need to purchase the other-than-collision) will apply to a CDW if: non-owned vehicle. 1. You Have Existing Coverage: If Collision Damage Waiver on Rental Cars you carry collision and - also known as Loss Damage Waiver comprehensive insurance on your (LDW), is a popular option offered by rental own personal vehicle, these policies car companies. It provides an important often extend to cover a rental car as distinction: it is not insurance. Rather, it well. This means your personal releases you from financial responsibility if insurance might already cover the the rental car is damaged or stolen, but costs of any damage or theft of the there are important limitations and rental car. conditions associated with this coverage. 2. Credit Card Coverage: Many major credit cards offer rental car Key Features of CDW/LDW: coverage as an additional benefit when you use the card to pay for the 1. Relieves Financial Responsibility: rental. This coverage is typically When you opt for CDW, you’re provided on an excess basis, generally off the hook for the cost of meaning it applies after your repairs or replacement if the rental personal insurance and any  coverage provided by the rental car These deductibles serve a few key company. Check with your credit purposes: card issuer to confirm the specifics of this benefit. Reducing Small Claims: They help prevent the filing of minor claims that Key Considerations: could be more expensive to process than the cost of the claim itself. If you have adequate personal car Keeping Premiums Lower: By insurance or credit card coverage, having a deductible, the insured the CDW might be redundant, and takes on some of the risk, which in you could save money by declining turn keeps insurance premiums the rental company's offer. more affordable. Review the terms of your personal Encouraging Careful Use: It insurance and credit card rental incentivizes the insured to take coverage to ensure that they cover better care of their vehicle, rental cars and understand any minimizing the risk of small or exclusions. preventable damages. If you don’t have personal insurance or credit card coverage The typical deductible amount for collision for rental cars, then the CDW can and other-than-collision coverage ranges provide valuable peace of mind, from $250 to $500, but higher amounts are especially for those who may not possible depending on the policy. You’ll want to risk the financial burden of need to pay this amount out of your pocket damages. before the insurance company covers any further expenses related to the damage or In summary, the decision to purchase the loss. CDW depends largely on your existing coverage. If you already have Transportation Expenses comprehensive car insurance or if your credit card provides adequate protection, Part D of your insurance policy also the CDW may not be necessary. However, if provides coverage for temporary you don’t have these protections, the CDW transportation expenses incurred due to the can offer significant relief from potential loss or damage of your covered auto. This financial responsibility in case of an can be especially helpful if your vehicle is in accident or theft. Always review the terms the shop for repairs or out of service for and conditions carefully before deciding. another reason. Here's what you need to know: Deductible - is the amount of money you must pay out-of-pocket before your Coverage Limit: The insurer will insurance coverage kicks in to cover the cover up to $30 daily, with a remaining costs of a claim. Both collision maximum payout of $900 for coverage and other-than-collision coverage temporary transportation expenses. generally have deductibles associated with This can cover things like renting a them. car, taking a bus, or using a taxi. When Does This Apply? Repair costs at a service station or garage are also not covered under If your covered auto is involved in a this endorsement. collision loss, transportation Limits: The maximum amount expenses are paid if the auto has payable will depend on the terms collision coverage. specified in the endorsement. If the covered auto suffers an other-than-collision loss, Common car insurance exclusions in the transportation expenses are paid if Philippines the auto is covered by other-than-collision insurance. In the Philippines, car insurance policies Transportation expenses can also be offer valuable protection, but there are covered if the loss involves a several common exclusions that applicants non-owned auto that you're legally need to be aware of to avoid unexpected responsible for. issues when filing a claim. These exclusions help insurers manage risks, but they can Exclusions: also leave gaps in coverage. Here's a breakdown of the typical exclusions in car If the loss is due to theft, expenses insurance policies: incurred during the first 48 hours after the theft are not covered. 1. Wear & Tear - Damage from normal wear For losses due to other causes, and tear is not covered. This includes expenses within the first 24 hours issues like mechanical or electrical after the vehicle has been withdrawn breakdowns due to aging, lack of from use are also excluded. maintenance, or the gradual decline in the condition of parts. Towing and Labor Costs 2. Illegal Activities - Claims will be denied An endorsement can be added to your if the vehicle was involved in illegal activities policy to cover towing and labor costs if your at the time of the accident. For example, covered or non-owned auto breaks down. driving without a valid license, using the Here are the key details: vehicle for purposes not disclosed to the insurer, or engaging in unlawful activities Towing and labor costs are covered while driving. if your vehicle breaks down and labor is performed at the place of 3. Driving Under the Influence (DUI) - If breakdown. an accident occurs while the driver is under Exclusions: the influence of alcohol or drugs, the insurance policy will not cover the damages. Charges for gasoline or a battery This exclusion underscores the importance provided at the breakdown site are of responsible driving. not covered. 4. Fraudulent Claims - Any fraudulent activity—such as staging an accident or inflating repair costs—will lead to a denied claim. Moreover, filing fraudulent claims can For a partial loss (e.g., a damaged result in legal consequences for the fender), the insurer will pay only the policyholder. amount necessary to repair or replace the damaged parts with 5. Unauthorized Drivers - If an property of like kind and quality. unauthorized driver (someone who isn't listed on the policy) is behind the wheel 2. OEM vs. Generic (Aftermarket) Parts during the accident, the claim may be rejected. It's important to ensure that only OEM (Original Equipment authorized drivers are allowed to operate Manufacturer) parts are those that the vehicle. are made by the vehicle's original manufacturer, while generic or 6. Depreciation - Depreciation is generally aftermarket parts are produced by not covered. This refers to the decrease in third-party manufacturers. the vehicle's market value over time, and Some policyholders believe that insurance typically does not compensate for aftermarket parts are of lower quality the natural depreciation of a vehicle. than OEM parts, leading to disputes. In some states, insurers must inform 7. War, Terrorism, & Civil Unrest - War, policyholders when generic parts are terrorism, and civil unrest are often used. excluded from car insurance coverage. These events are considered high-risk and However, practices vary by insurer: unpredictable, and the damages caused by Some insurers use OEM parts for them are typically not covered under new or late-model cars. standard policies. Others may allow the policyholder to Limit of Liability pay the difference between generic and OEM parts if they prefer OEM 1. Physical Damage Loss parts. It’s important to check with your The insurer will pay for a physical damage insurance agent to understand how loss based on the lower of two amounts: the insurer handles repairs and whether there's an option for OEM The actual cash value (ACV) of the parts. damaged or stolen property, or The amount necessary to replace 3. Loss to Non-Owned Trailer or the property with another of similar Equipment kind and quality. There are limits on how much the insurer If the cost of repairs exceeds the vehicle's will pay for certain types of property: actual cash value, the vehicle may be declared a constructive total loss. This Loss to a non-owned trailer is means the insurance payout will be based typically limited to $1,500. on the actual cash value of the vehicle Loss to audio equipment (like minus any deductible. stereos) that is not installed by the  car manufacturer is limited to remaining loan or lease balance. $1,000. This is known as a gap. Gap insurance is designed to cover Betterment the difference between what the insurer pays for the car (its actual Betterment refers to a situation cash value) and the amount owed where the repairs to a vehicle result on the loan or lease. in an increase in its value. For leased cars, dealers often buy a master gap policy and include the For example, if the insurer pays for cost in the monthly lease payment. repainting the entire car when only a fender However, it's important for buyers or and door were damaged, this would result in lessees to confirm this with the a betterment. dealer. Insurers will not cover betterment. Payment of Loss This means they will not pay for any increase in the vehicle’s value In case of a physical damage loss, the caused by repairs. insurer has the option to: Diminution in Value (Loss in Market Pay the actual cash value of the Value) car (including any applicable sales tax), or If a car is damaged in an accident, it Repair or replace the damaged may lose some of its value even property. after being repaired. This reduction If the car is stolen and later in value is commonly known as recovered, the insurer will pay for diminution in value. the cost of returning the car and any The Insurance Services Office damage caused during the theft. The (ISO) has issued an endorsement insurer can also choose to retain the that clarifies that diminution in recovered car and sell it to a value is not covered under the salvage dealer to recover part of standard physical damage coverage the loss. of the policy. This means that if the market value of the vehicle is Other Sources of Recovery diminished after an accident, the insurer will not compensate the If other insurance (e.g., the owner’s policyholder for this loss. insurance) covers the physical damage loss, the insurer will pay Gap Insurance only its pro rata share, meaning it will contribute according to the When you finance or lease a new proportion of its coverage limit to the car, its value depreciates rapidly in total available coverage. the first year. If the car is totaled For non-owned autos (like a soon after purchase, the insurance borrowed car or temporary payout may be less than the substitute), the insurer's coverage is  excess over any other available Alight from the vehicle and coverage. For example, if you document the situation by taking borrow a friend's car and damage it, pictures. their insurance applies first, and your 2. Avoid Causing Traffic: insurance covers the remaining If the vehicles are drivable, move damage amount, subject to your them off the road to prevent further deductible. accidents. Use flares or cones, and turn on Appraisal Provision hazard lights for visibility. Call the MMDA Hotline 136 for The appraisal provision helps resolve assistance if needed. disputes over the amount of a physical Never leave the scene until the damage loss. This is especially useful if the matter is resolved. car is in above-average condition or has 3. Stay Calm and Gather low mileage. Information: Once the initial shock wears off, The process involves: remain calm. Exchange names, addresses, Both the insurer and insured contact info, and insurance details selected an independent with the other driver. appraiser. If you can't reach an agreement, call The two appraisers then select an MMDA for traffic enforcers. umpire to make the final decision if Wait for the enforcers to guide you there is a disagreement. on next steps. The decision made by two out of the 4. Insurance and Repairs: three parties (the two appraisers and Contact your insurance agent from the umpire) is binding. the scene if possible. Both parties pay for their own Stay in touch with traffic appraisers, and the umpire's investigators and file an accident expenses are shared equally. report if requested. Importantly, agreeing to an appraisal process does not waive any rights Major Accidents under the insurance policy. 1. Check for Injuries: Assess yourself and passengers for injuries. Call for medical assistance Part E: Duties After an Accident or Loss immediately if anyone is hurt, or dial MMDA Hotline 136 for a medical Minor Accidents team and traffic investigator. 2. Document the Accident: 1. Safety First: Once safety is ensured, take Prioritize safety for all involved. pictures of the accident scene, vehicles, and license plates.  Photos are crucial for backing up damage. To address this issue, states your side of the story if needed. employ various measures to protect victims 3. Move Vehicles Safely: from irresponsible and reckless drivers. If possible, move your vehicle off the road to avoid additional accidents. They include the following: If unable to move, stay put and wait Financial responsibility laws for investigators. Compulsory insurance laws 4. Let Investigators Take Control: Low-cost auto insurance When police or traffic investigators Government-Backed Compensation arrive, let them manage the Programs situation. Legal Claims and Court Settlements Get their names for future reference. Alternative Dispute Resolution 5. Exchange Information: (ADR) Get the following details from the other Financial Responsibility Laws - driver: These require vehicle owners to prove their ability to cover damages Name, address, phone number from accidents, typically through Insurance company, policy number insurance or other financial means Driver’s license number and license like bonds or deposits. plate number Non-compliance can lead to Vehicle description (make, model, penalties such as suspension of year, color) registration or licenses. 6. Notify Your Insurance Company: Compulsory Insurance Laws - Contact your insurance company CTPL insurance is mandatory for promptly to report the accident. vehicle registration, providing Understand your policy’s coverage, coverage for third-party injuries or as sometimes the repair cost may be deaths but excluding the insured manageable enough to avoid driver and their vehicle. involving your insurer, which could Low-Cost Auto Insurance - lead to a premium increase. Affordable CTPL options help 7. File an Accident Report: low-income drivers comply with legal Filing a police report can expedite requirements, reducing uninsured your insurance claim process. motorists while offering minimal You can file this at your local police coverage for third-party liabilities. station. Government-Backed Compensation Programs - These B. Approaches for Compensating Auto assist victims unable to recover Accident Victims