The underlying reason for car insurance in Singapore is quite simple: the law requires it. Before even thinking about the benefits, you should consider the penalties for not taking out auto insurance. Motorists found without a valid car insurance policy can be prosecuted. The good thing is that you don’t need a huge budget to get your car legally on the road. At the very least, you should take out third party auto insurance, which covers damage and injury to others. Leaving aside the legal requirement, auto insurance has many advantages. It protects you financially should you inflict damage on someone else’s vehicle or property. You can also tailor your policy to protect against financial losses from injury and damage to yourself and your property as a result of a motor accident. There are also policies that cover medical expenses should you suffer an injury from an accident.
Types of auto insurance
Generally, there are three types of auto insurance policies – Third Party, Third Party Fire and Theft, and Comprehensive. You can choose optional benefits with all three if offered by your car insurance vendor at higher premiums. Companies may provide branded auto insurance packages with additional benefits here and there but, essentially, the policies fall into these three broad categories. Policies normally last for one year after a single lump-sum payment and should be renewed annually as long as you want your vehicle to stay on the road. You will also need to show a valid auto insurance certificate in order to pay for your road tax, without which you vehicle cannot be driven.
Third Party - This is the minimum requirement for auto insurance in Singapore. It is also the cheapest in terms of premiums, which depends on your experience as a driver, type and size of your vehicle and your claims history. Third party insurance usually provides coverage for damage to vehicle, person, and property to other involved party as a result of an accident.
Third Party, Fire and Theft – This is the middle level of auto insurance and provides the same coverage as Third Party with the addition of fire and theft protection for your own vehicle.
Comprehensive insurance – This kind of car insurance provides the most extensive coverage possible in terms of motor insurance and is more costlier. Comprehensive includes all the features of the previous two plus the coverage for damage to your own vehicle and your personal injury.
Optional benefits – you can also opt for coverage for situations such as windscreen damage, damage from civil unrest, passenger negligence cover and accident benefits for passengers, among others.
Making a choice
When pondering what kind of auto insurance to get, generally speaking, there is not a lot to choose from with the three standard kinds of policies as above. The obvious choice would be to select Third Party auto insurance, which is the minimum requirement and cheaper than the other two. And indeed, most motorists elect for this type of plan. Third Party and, to a lesser extent Fire and Theft, is generally recommended for older vehicles. Owners of older vehicles are not so concerned about minor damage to paint or bodywork and are usually prepared to foot the costs themselves rather than take out a costly comprehensive auto insurance policy. And if damage is done to another vehicle, Third Party protection would take care of it.
Comprehensive auto insurance is normally automatically given by the dealer when you purchase a brand new car and may be included in the price of the vehicle. The paint, bodywork and other parts of a new car are much more treasured by owners. Comprehensive allows you to repair your shiny new vehicle in case of an accident while protecting you from financial loss.
Premium rates
When your car insurance company calculates your premiums, they would use the “risk factor rating system”, which takes into account a number of factors related to you and your vehicle. Generally, the risk factors are: make and model of vehicle, engine capacity, age of vehicle, your age, gender and occupation, your driving experience, your insurance claims history, purpose of your vehicle (private or commercial) and insurance type.
Each factor is weighed against each other to determine your premium. If you are taking out an auto insurance policy for the first time, you can expect to pay higher than normal for the first year. Premiums should come down every year you renew your insurance as long as you haven’t made any major claims.
No-Claims Discount (NCD)
An NCD applies if you have not made a claim for one year or more. If so, you are entitled to a discount on the following year’s premium. By not making any claims, you are telling your insurer that you are a careful driver and the company is not taking a risk by covering you. Discounts usually increase by 10 per cent each year until the fifth year. After that, the discount should stay at 50 per cent. You also stand to lose your NCD should you make a claim at any time. However, this is not always the case.
The Singapore auto insurance industry uses the BOLA (Barometer of Liability Agreement) to decide how much each party is liable if they are involved in an accident. If your liability is 20 per cent or less in an accident with an identified vehicle, you can preserve your NCD. NCD is a personal record and not a vehicle record. But it is possible to have different NCDs with different vehicles, if you own more than one.
Cancellation
You are allowed to cancel your auto insurance, for whatever reason, by giving seven days notice to your insurer, who will refund to you what is left of the policy. Similarly, the insurer can also cancel the policy and refund you the unused cash. When it comes to refunds, you should read the terms and conditions carefully before signing up.
On a final note
Unlike many other types of insurance, auto insurance is not a luxury or a voluntary savings plan. It is compulsory if you want to drive your own vehicle on Singapore roads. Nevertheless, the principles are sound and it is merely meant to protect you against financial loss should you cause damage to vehicles or property or injure someone in an accident. You do have a choice, however, in the type of car insurance you choose. With three basic types, you should consider your driving experience, vehicle type and budget before selecting the policy that is best suited for your purposes.
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