How to get a good deal for a young, first-time car owner
Published: Sunday | February 8, 2009
Cedric E. Stephens, Contributor
Question: Our 23-year-old daughter is about to buy her first car. She lives with me and her father. We own and drive two vehicles. She will be buying a brand-new car and, therefore, must have comprehensive insurance. This type of coverage is very expensive. Because of this, we are thinking about adding the new car to our policy and transferring my 40 per cent no claims bonus to her car. The aim is to save money. Is there anything wrong with this approach?
- JS, Portmore, St Catherine.
Answer: I do not like what you are planning to do. It could cause you and your partner serious problems and end up costing you money - over the long term. Even more important, it would be plain wrong not to tell your insurers that the new vehicle was owned and would be driven mainly by your daughter.
Put another way, the ends do not justify the means. My advice: Shop around to try and get the best deal for your daughter.
Insurance contracts are very different from other types of treaties.
Legal duty
Buyers of insurance have a legal duty to tell insurers about everything that is material to the agreement. The key word is material. Over the course of many years, it has been held by the courts to mean those things that, according to The Dictionary of Insurance Terms, "had the insurance company known the truth, it would not have insured the risk" or, would have charged a higher premium. Failure to disclose material facts, gives an insurer the right to avoid a contract.
Application (proposal) forms that insurance buyers fill out and sign contain the details of what insurers would deem to be material. Buyers either do not keep a copy of the form or are unable to recall the information they supplied years or months later.
They are ignorant of the insurer's claims process, which starts after a claim has been reported.
But information in the claim form is routinely checked by insurers and compared with details in the application form. Since many persons do not know this, they end up with a nasty surprise.
Below are examples of information that motor insurers consider to be material. The list is based on a quick review of the application forms of two leading motor insurers.
Applicants for insurance are required to give complete and accurate answers to the questions on the form. They sign a declaration to this effect. The size of the list and the declaration create lots of wiggle room for insurers to avoid paying claims. In the long run, what you are planning to do save money could end up costing you money.
Twelve insurers compete for motor insurance. Three vehicles in your family should guarantee that you get a good deal. Also, insurers know that young ladies like your daughter are involved in fewer accidents than men in the same age group.
They offer special deals to women. Contact them for quotations. Comprehensive policies typically carry standard deductibles (or excesses) of five per cent for collision damage. Examine whether it would make sense to raise it to 7.5 or 10 per cent in exchange for a lower premium.
Too much risk
See also if your daughter would be eligible for a discount if the number of persons who were permitted to drive was limited to three persons - you, your partner and your daughter. Retain the services of a broker to do the leg work for your family.
To summarise: Your plan to save money involves too much risk.
In these uncertain economic times it is wise to avoid risk. Take a more conservative approach. It is more likely to result in savings for your family over the long term than the high risk way you described.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Email: aegis@cwjamaica.com.
