There’s nothing quite like a new car to fluff out your tail feathers and put a spring in your step. As exciting as it is, your shiny new car also represents a significant financial responsibility. Insurance may feel like the last thing you want to focus on when you’re chomping at the bit to get your new wheels, but it’s crucial not to let impatience and impulsivity cloud your better judgement by taking insurance cover without properly interrogating the terms and conditions of your policy, and the implications for your pocket come claims time.
“Given their significance in our lives, it’s really important to make sure that your car is correctly and comprehensively insured, so that if something goes wrong, you can bounce back financially and get back to normality as quickly as possible. The time to find out that your insurance cover is not quite up to standard is not when a panel van has parked in your boot at the traffic lights, or a freak hailstorm has done a swiss cheese impersonation on your body work. Vehicle insurance is not a one-size-fits-all product and you need to make sure you get the right cover for your needs,” explains Mandy Barrett of insurance brokerage and risk advisors, Aon South Africa.
Aon provides some invaluable tips that will help you when assessing your motor insurance:
- Beware of low premium – high excess cover
Some direct insurers offer motor insurance with monthly premiums that are much lower than most other covers on the market, which may leave you wondering why there is such a big disparity in premiums. You’re absolutely right to be concerned about this and to properly interrogate the reality of what this means for you at claims time. The lower monthly premium could have been offset by linking this to a substantially higher basic excess – this is the amount you will need to pay upfront from your pocket should you need to claim. This excess can range up to 25% of your vehicle’s retail value depending on the sliding scale that you take – the lower the monthly premium, the (much) higher the excess.
If you consider that on an average vehicle valued at R200k as an example, you would have to fork out R50k as an excess, from your pocket, if your car was stolen or damaged in an accident. While you may be saving R200 a month on premiums compared with other insurers, can you realistically afford to pay this kind of money if you need to claim? Your car won’t be fixed or replaced if stolen if you’re unable to pay the excess. And if your car is financed you will also still be liable for the monthly payments to the bank regardless of whether you still drive your car or not.
- Know what the ‘basis of loss settlement’ is on your vehicle insurance policy
A key issue on vehicle insurance is the ‘Basis of Loss Settlement’ in policy documents. Policy wording differs in this respect but the crux of the issue is the values used in defining this basis, notably retail and market value. Retail value is the price at which the dealer will sell a second-hand vehicle to you. Market value is the average of the difference in price between retail value and its trade-in value, in other words what you could expect to receive from a dealer, were you to trade the vehicle in.
Many policies will, in fact, pay out at a ‘brand-new-out-of-the-box’ value, which is also known as the list price, but usually only for no more than six to 12 months after purchase, reverting to cover for market value or retail value thereafter. More rarely, policies will pay out only at one of the lesser values from the outset of the policy. It all hinges on that critical ‘Basis of Loss Settlement’ which is essential to get right for your needs, first time.
- Get Credit shortfall cover
A credit shortfall on a financed vehicle typically arises when a vehicle is written off in the first two years of signing a finance agreement to purchase a car. Accrued interest on the loan may very well mean that your insured value of your vehicle could be less than your outstanding debt to the bank. If you don’t have credit shortfall cover to settle this amount, you will be liable for the shortfall between what’s owed to the bank, and your insurance settlement which does not cover you for the interest.
“You really want to know and understand the detail of what you are covered for before claims time. This is why when it comes to shopping for insurance, there’s really no beating the help and guidance of a professional insurance broker by your side to protect your best interests, point out all the important aspects of your cover, ringfence any exclusions or conditions, highlight what the general market trends are, and make sure you don’t get any unwelcome surprises come claims time. It’s unlikely to be the most riveting thing you’ve done lately, but getting a handle on your risks and how your insurance cover will respond in a claims scenario is likely to be one of the most financially important exercises you’ll do this year,” concludes Mandy.