Today, a lot of drivers wonder why it’s mandatory by law to buy car insurance – after all, no one forces you to buy, say, life insurance right? But actually, the argument for mandatory car insurance goes back almost 100 years and there are plenty of good reasons behind it. Here’s why.
For starters, you need to have motor insurance to have a car under your name
To get a car transferred under your name, you’ll need to have a cover letter from the insurer to show you have a valid policy.
As such, you should buy the insurance policy right after the purchase of the car – you’ll need to show it to the Land Transport Authority before the transfer can be completed*.
This ensures that every vehicle on Singapore’s roads (except foreign-owned cars such as embassy vehicles) is insured.
*In the event of any confusion, such as a seller deciding not to sell you the car after you’ve bought the insurance, you’ll need to contact the insurer to update them. There is a 20% cancellation charge which may be waived in such cases.
The main reason for compulsory motor insurance is liability
Car accidents can be expensive and often involve multiple third parties. For example, if a driver were to hit a bus, he wouldn’t just incur medical fees for himself – a dozen other bus passengers may incur medical fees of their own.
Also, property damage may not be confined to the driver’s car. If you hit a traffic light or power box with your car, for example, they have to be replaced immediately.
These types of third-party damages are referred to as liabilities. The main reason for mandatory car insurance is to ensure drivers can pay for these, especially as the costs are hair-raising (e.g. if you cause a multi-car collision on the PIE, the cost can run into millions).
But if the government didn’t make car insurance compulsory, some motorists would still refuse to buy liability coverage.
You see, we’re inclined to buy life or health insurance because it’s a direct benefit to us. But how many people would pay for insurance to protect strangers or public property?
Some motorists would prefer to just insure themselves. As long as their property and health are protected, they don’t care about what happens to others. And if they’re allowed to get away with it, then sooner or later other motorists will skip liability coverage as well. Why should they pay more premiums when others don’t?
So to make things fair, most governments – Singapore included – make it compulsory for all motorists to buy car insurance. It isn’t just to protect you, it’s to protect other road users as well.
Note that there are three main types of covers -Third party only insurance; third party, fire and theft insurance; and comprehensive car insurance. Learn about the differences between these types of motor insurance cover, and select the best plan that best caters to your needs.
A second reason for car insurance is to protect collateral
Cars are expensive in Singapore, so most people need financing to buy one. This typically takes the form of a bank loan.
The collateral for the car loan is usually the car itself – the lender has a right to repossess the vehicle if the borrower doesn’t make payments. But this means the lender also has a vested interest in the car’s condition. There’s no value in repossessing a car that’s been wrapped around a lamp post!
For this reason, banks often require you to buy comprehensive motor insurance when taking out a car loan.
As a side-benefit, compulsory motor insurance can encourage safer driving
All insurers want their clients to drive safely. The more cautious their insured drivers, the fewer claims they have to payout. This is why insurers have benefits such as the No Claim Discount (NCD).
The NCD reduces the cost of compulsory motor insurance, for each claim-free year that a driver has (to a maximum of 50 percent). This compels drivers to be extra careful as they don’t want to lose their accumulated NCD.
On top of the NCD, insurers raise premiums on high-risk drivers.
So if drivers are reckless and get into multiple accidents, they’ll soon find their motor insurance is unaffordable, or that no insurer is willing to cover them. As it’s illegal to drive without insurance, these dangerous types are effectively taken off our roads.
These days, however, motor insurance has evolved from just being mandatory to being desirable
As insurers get more competitive, motor insurance has come a long way. Today, most motorists would buy car insurance even if it wasn’t mandatory.
Comprehensive motor insurance no longer just covers repair costs or liabilities – it’s grown to include many essential services, such as covering the costs of lost personal effects (if someone breaks into your car) and providing immediate roadside assistance.
Insurance Market offers a wide range of general insurance products (such as Travel Insurance, Maid Insurance, Pet Insurance, and more) online and life insurance through personal advice from our qualified brokers. Please contact us at [email protected] or +65 69081811 if you have any questions.