How do car modifications affect insurance in the Philippines?

Modifying vehicles in the Philippines can significantly impact the auto insurance premium and the coverage provided. Thus, it becomes crucial for car owners to understand these implications.

Insurance companies see car modifications as potential risk factors, which might mean higher premiums or even a voided policy if you don't tell them upfront. Whether it's a revved-up engine, a lowered suspension, or a flashy paint job, anything that changes your car's safety or value can affect how much insurance costs. Let’s understand the impact of car modifications on insurance in detail.

 

Exploring car modifications

In simplest terms, car modification is a change made to a vehicle to differentiate it from the manufacturers’ original factory specification. These alterations are a way to take your stock vehicle and turn it into something unique that reflects your style and matches your driving needs. Car modifications can be broadly bifurcated into three categories:

Performance-enhancing modifications: Some drivers crave that extra kick! Performance-focused modifications, such as turbochargers, suspension upgrades, and enhanced braking systems, can make your car accelerate faster, handle sharper, and stop on a dime. Car enthusiasts also change their tyres and add alloy wheels to enhance their on-road performance.

Cosmetic modifications: Cosmetic changes are all about creating a unique visual style that speaks out loud about your individuality, uniqueness, and character. This could involve a new paint job, adding a body kit (think spoilers and side skirts), or swapping out the wheels and lights for a more customized look.

Functionality modifications: These are about tailoring your car to your specific needs. You may need a tow hitch for hauling trailers, a roof rack for weekend adventures, or a beefier sound system for those long road trips - all of these fall under functional modifications.

The Philippines has a thriving car culture, and Filipinos love personalizing their rides. But before you decide to modify your car, remember there are rules associated with modifications. In many jurisdictions, there are restrictions on the types of modifications that can be made to a car. So, checking with the local regulations first is always a good idea.

Also Read: Exploring essential add-ons for car insurance in the Philippines

Impact of car modifications on insurance

Many drivers don't know that car modifications need to be shared with their insurer. The reason is that modifications can change your vehicle's risk level, altering insurance costs, coverage, and other policy terms. Here's how modifying your car affects your insurance:

Higher premiums: Car insurers in the Philippines use risk assessment to decide premiums. If modifications make your car faster or more powerful, it's considered more likely to have an accident. These could be turbochargers that increase engine power, suspensions that lower the car for better cornering, or wider tyres for grip. Suppose you add a performance air intake. It could speed up your car but also strain the engine, leading to possible breakdowns or accidents. The insurer may consider this as a bigger risk and ask for a higher premium.

Incomplete coverage: Standard policies usually only cover what the car came with from the manufacturer. Any added extras like custom wheels, a better stereo system, or a spoiler, wouldn't be covered for theft or damage without extra coverage. You will need to add an "accessories cover" to your standard policy to include these, but expect to pay more because you're insuring a more valuable car.

Potential claim rejections: Transparency is the key when it comes to car modifications and insurance. If you don't disclose any changes made to your car during the application process or renewal, and you get into an accident, your insurer might discover these modifications during the claims investigation. If the undisclosed modifications are deemed to have contributed to the accident in any way, they have the right to reject your entire claim. This can leave you financially responsible for repairs and potentially facing financial hardship.

Also Read: Why might your car insurance claim get rejected in the Philippines?

Policy cancellation: In some extreme situations, car insurance companies might even cancel your policy. This happens if your modifications are unsafe or not approved by the Land Transportation Office (LTO). For example, overly low suspensions or unapproved aftermarket headlights could be dangerous. If your insurer finds these, they might not only reject your claim but also cancel your policy, leaving you uninsured.

Legal repercussions: This is more than just the insurance. If you have unauthorised/illegal modifications that contribute to an accident and are considered unsafe or not LTO-approved, you might get into legal trouble. You could get a ticket for breaking traffic laws, and if the accident is severe, you could be liable for damages to others.

Factors influencing insurance of modified cars

Insurance of modified cars involves several key considerations that shape the policy, charges, and terms. Let's unpack each one:

Type and grade of modifications: Your car's modifications play a big role in determining its insurance. As discussed earlier, performance-enhancing modifications increase prices due to higher accident risk and pricey repairs. Even aesthetic changes, like a fresh paint job or a custom body kit, can tweak the car's value and risk and thus affect your insurance.

Insurer policies and guidelines: Every insurance company takes a different approach to modified cars. Some firms specialize in or are easygoing about, modified cars, offering bespoke policies that factor in these changes. However, mainstream firms might hike prices or even deny coverage to heavily modified cars. Knowing where your insurer stands is the key to finding the right coverage.

Risk appetite: The amount of risk a company is willing to take determines the price and availability of insurance. Firms evaluate the chance of claims based on alterations, with riskier ones leading to increased costs or stricter terms. A firm willing to take on less risk might say no to certain changes.

Approved modifications: Some insurers keep a list of modifications they're okay with, which usually don't really change your policy or costs. These are typically alterations that don't turn the car's performance or safety on its head. Being aware of which changes are pre-approved helps plan modifications so that insurance isn't at risk.

Modification documentation: Accurate documentation of every modification, such as receipts, professional fit records, and thorough detailing, is necessary. Insurance companies need these records to calculate the car's value and how changes affect risk. Poor documentation can lead to disputes when claiming or even coverage denial.

Premium negotiations: Knowing how each change impacts insurance costs is the key to negotiating a modified car's coverage. Coverage holders may be able to lower prices by showing that the modifications were professionally fitted, are safe, or raise car value without increasing risk. A clean driving record and thorough documentation help when negotiating the premium of modified cars.

Declared vs hidden modifications: It's crucial to report all modifications to the insurer. Missing out on any details can void the policy, leading to denied claims if there's an accident or theft. Honesty about modifications ensures the car is properly covered, saving the coverage holder from money troubles and legal hassles.

To sum it up, altering your car in the Philippines can substantially affect your insurance. Tell your insurer everything, from engine boosts to appearance changes. This way, you'll avoid policy cancellation or claim rejections. It's important to remember that certain modifications may require greater coverage or result in higher insurance costs. If you know how your insurer sees these changes, you can make smart choices to customize your car. Plus, you'll know you have the right coverage, giving you confidence on the road.

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