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Rationalize Your Auto Insurance

Almost everyone has heard of “obligatory auto insurance,” known by its Spanish initials as SOA. It is not sold directly by the National Insurance Institute (INS) or its agents; the premium for SOA is painlessly tacked onto the road tax payment you make every December to get your marchamo (circulation permit) for the following year.

The SOA covers personal liability – in other words, it pays if you hurt, kill or maim a third party with your car. The amount of coverage, up to ¢1.5 million ($3,000) per accident, is grossly insufficient, so I recommend you look at SOA as another tax. And you can’t evade taxes – at least, not without running the gauntlet of traffic cops who make sure that all cars have the marchamo sticker on their windshields.

About 80% of the vehicles in Costa Rica have only the SOA obligatory coverage. Prudent motorists buy supplementary insurance, which is the focus of this article. Several factors are taken into account to determine the premium for auto insurance:

Is the car owned by an individual or by a corporation?

Auto insurance should be in the name of the legal owner of the vehicle, as appears in the National Registry. Auto liability is a bit cheaper for cars and pickups owned by individuals than for vehicles owned by corporations. The difference is irrelevant.

How much auto liability?

In general terms, buy as much liability as INS allows your agent to sell you. The rationale: the auto insurance policy is written in an inflationary currency, the colón. If, today, you were to kill a pedestrian, for example, it would probably be three to five years before the courts would find you guilty and sentence you to indemnify the deceased’s family, and they would determine the award based on the purchasing power of the colón at the time of sentencing. As only the government controls how much inflation will erode the colón over time, the canny thing is to get as much auto liability coverage as you can – it’s cheap, anyway – as you don’t want to be underinsured at the time an award has to be paid.

Direct damage coverage for your car.

Collision, overturning, theft, fire, etc. The cost of these coverages is based on which ones you want and the insured value of your car.As to which coverages you should have, there is no hard and fast rule. I have had clients with a decent-looking Mercedes or BMW who only wanted liability, because they said that if “that old thing” were totaled or stolen they’d just go out and buy another one – like buying new shoes! Then there was a chap with an old Volkswagen Beetle who bought full coverage (liability, collision, theft, fire, etc.), and I realized that if his car were lost, he’d have to save his pennies for two or three years to buy a replacement. So remember the old insurance rule: insure against events that, if they were to happen, you would find yourself hard pressed, financially, to overcome. Imagine if your car were stolen – would it precipitate a crisis or a mere inconvenience?

Value of your car.

INS says that you, the owner, must determine the value at which to insure your car, and instructs you to base it on market value – the Costa Rican market, of course. At the same time, INS has a “blue book”with the values of most of the cars we see in this country. If the value you propose differs greatly from the blue book, the institute will not issue a policy. Your agent has the blue book on his computer, and should advise you.

In other countries where blue books are used, insurance companies will adjust the insured values of cars downward as they age, and reduce the premiums.Here, INS won’t do it automatically – they want your signature on the appropriate form. So if you realize that your car is insured for a value greater than market, get in touch with your agent. Policies can be modified any time, except when they are in the grace period for the renewal, so try to time the changes nicely – just before renewal – because getting premium money back from INS is like pulling teeth.

No-claims bonuses.

These are in increments of 5% every six months. Remember that INS auto insurance goes in six-month “bytes.”When you first get auto insurance, for the first four six-month periods, you get no bonus. The premium for the fifth six-month period should reflect a 5% discount or bonus. The sixth premium should have 10%, and so on. No-claims bonuses peak at 40% – probably for people who hardly drive their cars, or who have super-sized guardian angels. If you have a claim, INS may reduce your bonus, eliminate it altogether or – in extreme cases –apply a surcharge for reckless driving.

Advice: Check your auto premium, as INS doesn’t always remember to apply bonuses, and doesn’t provide your agent with the means of checking. If you think you are eligible for a greater bonus than you have, contact your agent – a form must be filled out.



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