Most people have heard of “obligatory auto insurance,” known by its Spanish initials, SOA (seguro obligatorio automotor). It is not sold directly by the National Insurance Institute (INS) or its agents; the premiumfor SOA is painlessly tacked onto the road tax payment you make every December to get your windshield sticker (marchamo) for the following year.
SOA covers personal liability; in other words, it pays if you injure or kill a third party with your car. The amount of coverage, up to ¢1.5 million (about $2,900) 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 making sure that all cars have a valid marchamo on their windshields.
About 80 percent of vehicles in Costa Rica have only the SOA obligatory coverage. Prudent motorists buy supplementary insurance, which is what this article focuses on. Several factors are taken into account to determine auto insurance premiums:
1. Is the car owned by a person or 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 tiny bit cheaper for cars and pickups owned by individuals, as opposed to vehicles owned by corporations. The difference is negligible.
2. 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. Sadly, we must postulate a tragedy to give an example: If today you were to hit and kill a pedestrian, it would probably be three to five years before the courts would find you guilty and sentence you to indemnify the departed’s family, and they would determine the award based on the purchasing power of the colón at the time of sentencing. As the government’s economist boffins control 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.
3. Direct damage coverage for your car. The cost of coverage for collision, rollover, theft, fire, etc. is based on: a) which events you want coverage for, and b) the insured value of your car.
3a. Which coverages? There is no hard and fast rule. I have had clients with a decentlooking Mercedes or BMW who only want liability because they say 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 elderly Volkswagen bug 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, would leave you hard pressed to overcome financially. Imagine if your car were stolen:Would it precipitate a crisis or a mere inconvenience?
3b. 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” listing 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 at any time, except when they are in the grace period for renewal, so try to time the changes nicely – just before renewal – because getting premium money back from INS is like drawing teeth.
4. No-claims bonuses. These are in increments of 5 percent every six months, starting after the first two years. Remember that INS auto insurance goes in six-month “bites.” 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 percent discount or bonus. The sixth premium should have a 10 percent discount, and so on. No-claims bonuses are capped at 40 percent – probably for people who hardly drive their cars or who have supersized 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. There is a form to be filled out…