It’s tempting to skip car insurance coverage for an idle car in order to save money. You may be cutting costs, reducing your carbon footprint, benching your ride in favor of another vehicle or mode of transportation, or in this case, staying home due to the extended Enchanced Community Quarantine.
But although maintenance of a stored vehicle is something you can personally undertake, there is another aspect of your car may require outside intervention: your insurance coverage.
The question is, should you get car insurance for a ride that you don’t drive that much anymore? What will happen if you don’t? What are the factors at play here?
Let’s answer your questions one by one so you can manage your finances correctly and avoid inconvenience in the future.
Is car insurance a necessity?
Ditching your car for whatever reason may be a huge sacrifice on your part, especially if the expenses that come with your daily drive cannot match the advantages of unhampered mobility. But as a responsible car owner, you should know that unexpected things can happen to your car, which could result in costly damages. Yes, even while it’s parked safely in a garage.
Paying for a vehicle insurance premium may be costly, but it can save you a lot of headaches later on. Aside from the standard protection and Acts of Nature cover, your policy may entitle you toadd-ons that can come in handy later. These include legal assistance, free towing, free lodging, among others. (We at eCompareMo provide a temporary replacement car for use by our customers while their unit is in the repair shop.)
One might argue that not using your car voids the need for insuring it. That may not always be the case.
When an insurance is required
If you already own the car—meaning you are no longer paying your monthly amortization to the bank—then you are under no obligation from any entity to get a comprehensive vehicle insurance. After all, only compulsory third-party liability insurance is mandated by the government prior to registration or renewal of your automobile.
Beyond that, getting comprehensive car insurance is just voluntary and more like a financial security measure.
Although the benefits of having coverage greatly outweigh the cost of annual payments, and the depreciating value of a vehicle will make premiums lower, car owners who are no longer encumbered by loan repayments can opt not to get one. Even if you don’t drive it anymore, there will be no legal issues you in the future.
However, the case is different for people who finance their vehicles through an auto loan.
For these, a comprehensive insurance is required by the bank and usually comes free for the first year. Right before the coverage expires, lenders will give you the option to renew your coverage with the same dealer or choose a more suitable insurer to suit your needs.
As part of your auto loan contract, you are required to submit your insurance policy to your lender every year. Why is this the case with vehicles purchased using auto loan? Here’s a little explainer.
When you buy a vehicle through financing, banks are the ones in charge of forking a significant part of total purchase value. Usually, the maximum loanable amount you can get for an auto loan is 80 percent of your target vehicle amount. Once approved, you have a maximum of five years to settle your dues to the lender in equal monthly repayments.
During the course of your amortization, the lender has the legal possession of the vehicle and you only have been extended the rights to use it through your contract with the bank. Your certificate of registration will say that your car is encumbered.
By the time you’ve paid your loan, you will be given a set of documents to prove completion of repayment and the word encumbered will be removed from your documents.
Where does insurance play in all this? As part of their way to insulate themselves from financial losses due to total loss or theft, banks are requiring their car insurance clients to get a comprehensive car insurance with Acts of Nature.
If you read the terms and conditions of auto loans, car financiers are the ones responsible for pursuing and collection of claims. The insurer, under the loss payable clause of car insurance policies, will redirect the proceeds to the lender because it has an assignment of interest in the car.
As the lienholder of the car, your bank has first dibs on claim because they forked out money for your car.
What happens if you don’t get an insurance car under mortgage?
Since part of your auto loan contract is submission of car insurance policy every year, your bank will continue to bug you to send them proof of your insurance coverage. If your current coverage lapses and you still haven’t renewed your insurance, you will be required to pay penalties.
Some banks will even force to enroll your vehicle to a comprehensive car insurance coverage of their choice and put it on your tab—with hefty interests.
For instance, one bank is known to get an insurance for your vehicle and make the premium payable on the next due date. Failure to do so will mean that a three-percent interest on your unpaid premium. This applies whether you are able to use your vehicle or not.
Is this unfair to the consumer? Not really. Banks as the mortgagee require you to purchase comprehensive car insurance for your loaned car because they have to regain the amount they used to buy your car.
In addition, when you enter a contract with the bank, they expect you to review the terms carefully—and walk away if they seem unreasonable to you.
As for fully paid vehicles? Well, you know the risks. If you do get car insurance for an idle car, make sure you put an Acts of Nature cover on. The possibilities are endless.