Car insurance participation fee: All you need to know

insurance payment via online banking

Ever heard of a participation fee? We are sure many first-time car buyers must be hearing about it for the first time. So, we are here to guide you through the world of participation fee and its role in your car ownership journey.

KEY TAKEAWAYS

  • Can I reduce my deductible fee?

    Car insurance companies typically don't allow for a reduction in deductible because the Motor Tariff sets the minimum deductible fee for vehicles in the Philippines. However, you can opt to increase your deductible to lower your insurance premium.
  • What are some of the factors that influence the car insurance deductible fee in the Philippines?

    Several factors can influence the deductible fee for car insurance claims in the Philippines, they are Vehicle Value (the higher the value of your vehicle, the higher the deductible), Vehicle Type, (commercial vehicles like vans, SUVs, and AUVs often carry higher deductibles compared to private cars), Vehicle Age (older vehicles incur higher depreciation costs, thus increasing the deductible), and Parts Replacement (replacing certain parts such as batteries, tyres, ball joints, tie rods, or shock absorbers can result in the highest depreciation fees, with rates of 45% for private cars and 50% for commercial vehicles).
  • Who covers the deductible if I'm not at fault?

    The deductible is only applicable when you're deemed responsible for an accident. If it's determined that you're not at fault, a process called subrogation takes place. In this process, the other party's insurance company reimburses you through your own insurance provider, pending a successful investigation and subrogation.
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    Without further ado, let’s dive into the world of insurance participation fees. To begin with, let us first understand its meaning.

    What is the participation fee, and which component of your car ownership journey does it belong to?

    Well, the participation fee is associated with car insurance, which answers the latter part of the question. Now, let us go down to the most important part of the question, i.e., what is the participation fee?

    So, basically, the participation fee is the amount you pay to your car insurance provider. When? Before the insurance company starts paying for your coverage expense, which means you pay it everytime you make a claim. It is one of the most common requirements for most types of car insurance claims.

    Wondering why such a name, like it could be anything else other than ‘participation’. Well, that’s because as a policyholder, you too are participating in the cost of your car insurance. Understand it like every time your car gets damaged, you too are contributing to its repair cost along with the insurance company.

    What is the need for a participation fee? When is it charged by the insurance provider?

    Everytime a client files a claim, whether for vehicle damage or loss, the car insurance provider requires the submission of a participation fee. As for why, the below-mentioned pointers answers the question.

    Switching car insurance

    Reason for charging a participation fee by your insurance provider

    • As per the insurance company, the driver is responsible for any damage caused to the vehicle during an accident
    • It is believed that participation fees discourage clients from committing fraud when filing claims
    • It is a way to prevent car owners from abusing insurance benefits for minor damages

    Sounds fair to us, do you agree?

    Also Read: Switching car insurance providers in the Philippines: A detailed step-by-step guide

    What are the different types of car insurance participation fees?

    Generally speaking, car insurance participation fees include either a deductible or a depreciation fee. However, some providers include both. We’ll discuss both in detail here.

    Therefore, it is extremely crucial for a car owner looking for an insurance provider to properly review the policy and check what fees are charged, such as the participation fee.

    Also, some insurance providers charge lower participation fees than others, thus affecting the overall insurance cost. So, whenever you are out there to buy insurance, it is best to always go for the one offering maximum coverage and charging a minimum fee.

    Now, let’s get to know the Deductible and Depreciation Fee in detail.

    car insurance payment

    Deductible Fee

    Meaning: A deductible fee is paid by a client every time he/she files for an incident resulting in damage or loss. While some policies do not include deductibles at all, there are others that charge more than one deductible (depending on the coverage).

    When is it charged? An insurance provider usually charges a deductible when a client files for a claim pertaining to a collision theft, comprehensive, and own damage coverage. In some cases, even personal injury protection cover qualifies for a deductible fee.

    Usefulness: This fee applies when the client is involved in a car accident and is at fault. The vehicle repair cost will be deducted from this fee (paid by the client), and the insurance company will cover anything above that.

    Fee amount: For private cars like sedans, hatch, SUVs, etc it is 0.5% of the vehicle’s fair market value or PHP 2000, whichever is greater. For commercial vehicles, on the other hand, it's 1% of the unit’s fair market value or PHP 3,000, whichever is greater.

    Depreciation Fee

    Meaning: Depreciation fee is a percent a client pays for the new parts which will be replacing the old damaged ones. In short, it is the difference between the value of an auto part at the time you purchased the car and its value at the time of replacement.

    When is it charged? It only applies to vehicles older than three years. Note that no depreciation fee is charged in case of total vehicle loss.

    Usefulness: This fee comes into play when the client’s vehicle requires part change.

    Fee amount: The table mentioned below gives an in-depth breakdown of the depreciation fee charged by the insurance company.

    Vehicle Age/Car Parts

    Private Vehicle

    Commercial Vehicle

    Up to 3 years

    NA

    NA

    3 to 4 years

    20%

    25%

    4 to 5 years

    25%

    30%

    5 to 6 years

    30%

    35%

    6 to 7 years

    35%

    40%

    Over 7 years 

    40%

    45%

    For shock absorbers, batteries, ball joints, tyres, and tie rods

    45%

    50%

    Participation fee How much does it actually cost?

    Depending on the type of vehicle, its age, and fair market value, the participation fee in the Philippines ranges between PHP 2,000 and PHP 3,000.

    Car insurance participation fee

    Participation fee How to calculate?

    In a few simple steps, you can easily calculate the participation fee on your car insurance policy. It starts with the computation of the deductible fee, followed by the depreciation fee, and lastly, adding the two together gives you the participation fee, i.e., Deductible Fee + Depreciation Fee = Participation Fee

    Deductible Fee                        

    Depreciation Fee 

    Participation Fee

    Car’s FMV X 0.5 or 1% 

    Car’s repair/replacement part cost X Depreciation rate based on the vehicle’s age

    Deductible Fee + Depreciation Fee 

    *FMV: Fair Market Value

    Let us understand the same by an example -

    Sample case: You own a 5-year-old sedan with a market value of PHP 1 million. The car was involved in an accident, resulting in a part replacement cost of PHP 20,000.

    Solution:

    Deductible fee: PHP 1 million X 0.5% = PHP 5,000

    Depreciation fee: PHP 20,000 X 25% = PHP 5,000

    Participation fee: Deductible fee + Depreciation fee = PHP 5000 + PHP 5000 = PHP 10,000

    Meaning, you’ll claim PHP 20,000 from the insurance company for your car’s damaged parts. However, to claim the same, you’ll first have to pay a participation fee of PHP 10,000. The renaming PHP 10,000 will be paid by the insurance company.

    Car insurance participation fee

    How to cut down car insurance participation fees?

    Yes, it is possible to save money on car insurance participation fees. Let us check out how it can be done.

    1. Opt for a fixed deductible fee

    If you want to keep your upfront costs low, consider choosing a car insurance plan with a set deductible, typically between PHP 2,000 and PHP 3,000. But remember, this might mean paying a bit more each month as a premium.

    On the other hand, opting for a higher deductible can lower your monthly payments, but it's important to think about your driving habits and where you usually drive. If you're often on busy or accident-prone roads, a lower deductible might be smarter in the long term. Ultimately, it boils down to whether you have the funds to cover repairs if you're in a crash.

    2. Consider using second-hand parts for repairs

    You can avoid losing value on your car by using second-hand parts—like bumpers, doors, or fenders—instead of new ones. These parts don't lose value over time, unlike new ones. Just be sure to inform your insurance company about this.

    3. Seek compensation if you're not to blame

    If someone else caused the accident, you might not have to pay your deductible. You can try to get reimbursed by going through the other person's insurance provider. If successful, your insurance company will give you a Certificate of No Claim.

    4. Pay for repairs yourself, when it's cheaper

    If your deductible is more than what it costs to fix your car, it might not be worth making an insurance claim. In such cases, it could be better to cover the repair bill out of your own pocket.

    Bottom Line

    Participation fee is a given in a car insurance policy. However, there are ways to cut down on this fee. However, it is best to drive safely and stay away from accident-prone areas so that you don’t have to apply for a claim.

    Also Read: Your guide to car insurance payment options in the Philippines

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