Understanding car insurance

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Motor vehicle insurance has been described as a necessary evil – even if you pay cash for a motor vehicle and you are the most cautious of motorists, you are at great financial risk if you drive an uninsured vehicle. Having a good insurance policy puts your mind at ease as you drive and this in itself is one of the biggest vehicle insurance benefits – peace of mind that should you be in an accident or have your car stolen, you are covered.

In South Africa, vehicle insurance can be quite expensive with insurance policies having strict conditions as a result of the high-risks of criminal activity and unlicensed road usage. Arrive Alive provides some advice to our road users and vehicle owners about car insurance and road safety.

Basics of vehicle insurance

Motor vehicle insurance is essentially a contract in which an insurance company assumes financial responsibility for any loss the insured may incur through damage or theft to their vehicle. The bottom line is that you must read your policy and the schedule and make sure that you clearly understand the terminology, terms and conditions, and any exclusion clauses.

Golden rules of car insurance are:

  • Know the promise you’re buying. When you buy insurance, you buy a promise. For years or even decades you may pay your insurer to say: “In certain circumstances that may never arrive, I will give you certain things.” You need to be sure of what these circumstances are and what you will gain from the cover.
  • Keep the promise you are making. When you buy your insurance, you give your insurer personal information such as your habits and the ways you will use the items you are insuring. If the information is wrong, sometimes even a little bit wrong, the insurer’s promise won’t hold up.
  • It is the insurer’s job to pay you what you are due and not more.

It is important to understand why you are paying a specific premium to insure your car. When your car is stolen, damaged or written off in an accident, the insurance provider will pay out an amount based on a variety of values that are determined beforehand.

“With South Africa’s high accident and car theft rate, you cannot afford to drive an uninsured vehicle.”

These factors include:

  • The model and make of your vehicle that is insured, the age of the vehicle as well as the condition that it is in, and the replacement value of the vehicle in question.
  • If your car is damaged, the normal procedure is the insurer will establish whether the quote to repair your car is reasonable and will ensure that all the damage is repaired. Generally, the insurer will write off your vehicle if the cost of repairing your vehicle exceeds 70% of its value. In this case, the insurer will pay out the vehicle’s market value or retail value, depending on the terms and conditions of your contract.
  • Market value, which is what most insurers pay out, is the average of the retail and the trade value. Retail value is the price you pay to buy your vehicle, whether new or second-hand, from a dealer. The trade value is what a second-hand dealer will give you if you trade in your car.
  • If your insurer pays out market value, the amount will not be enough to replace your car with a new one.

The cost of car insurance premiums

The insurance company takes many factors into account that may affect the risk to the company of having to pay out a claim:

  • The more extensive the insurance cover, the more the policy will cost you. This is why comprehensive cover is more expensive than third party insurance.
  • The type of vehicle, such as 4×4, sporty car, family car or bakkie will have an influence on the insurance premiums. Some vehicles simply cost more to repair than others, while specific vehicles are more at risk of being stolen or hijacked. The safety offered by the vehicle will also play a role. In addition, aspects such as airbags may push the premiums a bit higher because of the cost involved in replacing them.
  • The age of the vehicle will have a definite influence. This is because an older vehicle may cost less to replace, but it may be difficult to get parts for the vehicle and, in general, it will be more at risk of burning out or failing in one or other way. If you get a pre-owned vehicle, insist on an AA test certificate to ensure that you can get lower rates.
  • Sporty vehicles will cost a bit more because of the power and speed associated with them. Drivers are more likely to be younger and less responsible than the older family car drivers.
  • Factors affecting the cost of the policy will also include where you live and whether or not your car is kept in a locked garage at night.
  • The premium may be reduced if the vehicle is fitted with tracking and anti-theft devices, etc.
  • Important human factors are the age of the driver, gender, driving experience, driving record, and when the person received a driver’s license. The longer you drive the more experience you gain. For this reason, people over 25 get a slight discount on their car insurance premiums.
  • First-time drivers or drivers with no history on South African roads are penalised by paying higher premiums until they demonstrate that they are safe drivers. Drivers with a good safety record may benefit when they purchase a vehicle insurance policy by receiving lower premiums.
  • The vehicle owner must confirm what the policy says about nominated drivers. Future claims may be rejected if the insurance company restricted the drivers of that specific vehicle.
  • It generally costs more to insure your car separately (in a stand-alone policy) than it does to include it in your household contents insurance policy.
  • You may qualify for a discounted premium (referred to in the industry as a no-claim bonus) on comprehensive cover if you have a record of not making claims. The longer the period you have not claimed, the greater the discounted premium you can expect to pay.
  • As with all insurance, the person who takes out the insurance must pay an excess, which is the first amount payable of any claim. Even if you were not at fault in an accident, you have to pay the excess.
  • Many insurers allow you to negotiate the amount of the excess, and this also affects the cost of the premiums you pay. The higher the excess, the lower the premiums, and vice versa.

Why do I need vehicle insurance?

With South Africa’s high accident and car theft rate, you cannot afford to drive an uninsured vehicle. If you are an uninsured driver, you alone are responsible for covering the costs of repairing your car or even buying a new one if it is seriously damaged. You will also bear the legal costs of trying to claim damages from another uninsured driver without the assistance of an insurer.

“Make sure you buy insurance from a reputable company otherwise you may find that your cover is not worth the paper it is written on when you make a claim.”

What to consider when you shop around

There are many insurance companies out there and it can be quite tough deciding which to opt for. Before getting vehicle insurance, get a detailed view of different insurance quotes from more than one insurance company. It is your responsibility to carefully look into the insurance quotes and then decide which one is suitable for you and your vehicle.

  • Do your research and shop around. Get at least three comparative quotes.
  • Don’t make a decision based on the premium only. Make sure you know about hidden costs such as additional excesses.
  • Consider the insurer’s reputation for service, price and claim settlement turnaround times.
  • Make sure the company you choose is a registered Financial Services Provider (FSP). You can verify its registration with the Financial Services Board which regulates all insurance companies.
  • Take time to discuss the details of your insurance policy with the direct insurer or broker.
  • Compare apples with apples. This means, for example, checking if your vehicle is covered for retail or market value and ensuring the excesses are similar.

Types of car insurance

The vehicle owner needs to be aware of the variety of vehicle cover options. Some of these descriptions are:

  • Comprehensive Cover covers your vehicle for accidental damage, theft and hijack, as well as injury to other people or damage to their vehicle in an accident.
  • Balance of Third Party, Fire and Theft Insurance provides you with cover for damage to the other party’s vehicle in the event of an accident, and for your vehicle in the event of loss by theft, or fire.
  • Balance of third party is the most limited form of cover. It does not cover you for damage to, or the loss of, your own vehicle, but it covers the costs of damage to the other car in an accident you cause.
  • Limited Cover covers your vehicle for damage caused by fire, theft and hijack, as well as injury to other people or damage to their property, Accidental damage to your vehicle is not covered.
  • Liability to Other People covers you for liability to other people where an accident caused death or injury to them or damage to their property.
  • Essential Cover is a no-frills option for older, lower value vehicles where you choose the combination of and amount of cover that you need.

Policies may also include a wide range of options and benefits:

  • Bodily injury liability, property damage liability, medical payments coverage, uninsured or under insured motorist coverage, comprehensive coverage, etc. are some of the great vehicle insurance benefits available.
  • Medical payments coverage assists in paying medical expenses, even if the insured person is injured in somebody else’s vehicle. Uninsured motorist coverage protects against expenses incurred as a result of an accident that is caused by another individual who is either uninsured or who has inadequate coverage.
  • Other general vehicle insurance benefits are the cars being covered for their retail value, the fact that you will pay a fixed excess and that repairs done are guaranteed for 12 full months.
  • Another benefit is the provision for extending coverage to others driving your car with your permission.
  • 24-hour emergency roadside assistance, as well as cash bonuses for not claiming are more insurance benefits.

Make sure you buy insurance from a reputable company otherwise you may find that your cover is not worth the paper it is written on when you make a claim. Remember that you have a right to make an informed decision – demand all the information you need before signing a policy application.

Also read:

4 tips to get on top of your finances in 2019
5 questions growing families should ask when choosing medical aid