Buying a vehicle is a long-term decision and we want to help you make an informed one with our Street Smart series, brought to you by Absa Vehicle and Asset Finance. In this episode, we chat with Absa’s Pascal Siphugu about the importance of value-added insurance products.
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While taking out vehicle insurance is vitally important, consumers don’t always understand the importance of value-added insurance products when taking out a vehicle finance loan. These include solutions such as mechanical breakdown warranty and tyre and rim cover. However, two solutions play a particularly significant role – extended cover and credit protection. Pascal Siphugu, General Manager: Bancassurance, Absa Insurance company, tells us more…
What is Extended Cover?
SIPHUGU: Extended Cover, which is also known as credit shortfall insurance, top-up- or gap insurance cover, is designed to cover the difference between your vehicle’s retail value or the amount for which the car is insured and the outstanding balance or amount that you owe on your loan. Extended Cover kicks in if your vehicle is stolen or written off as a result of an accident.
Why is Extended Cover so important?
SIPHUGU: Financing a car means paying monthly instalments to the bank. A vehicle’s value depreciates the older it gets – it will depreciate by between 15- and 20 percent in the first year and by approximately 50 percent after 5 years. Therefore, you’ll have a gap between what your comprehensive policy pays out and what you owe to the bank. If your car is stolen or written off, you’d still need to continue paying your car instalments.
And just because your car is worth less does not mean that there will be a drop in the amount that you owe on the loan. Your insurance payout may not be enough to cover what is owed on your finance agreement.
Extended Cover will assist in covering the shortfall, the last thing you want is to keep paying off a car that you don’t own anymore.
Click here to learn more about Extended Cover
Another value-added product, the value of which may be underestimated, is Credit Protection. Can you tell us what that is?
SIPHUGU: Credit Protection is a type of insurance that can be used to pay debts or make monthly repayments on a customer’s behalf in the event of an unforeseen life event. It can be used to pay off a range of debts, including vehicle finance loans, home loans, personal loans, credit cards and so on.
Which life events can be covered by Credit Protection?
SIPHUGU: Depending on the option you choose, Credit Protection plans can cover your debt in the event of loss of income, critical illness, temporary disability, permanent disability, terminal illness or death.
It will either settle your outstanding vehicle loan or pay your monthly repayments for a limited period of time when your obligations become due after an insured event has occurred.
Click here to learn more about Credit Protection
Can a credit provider insist on a customer taking out credit life insurance during the contract period of the loan?
SIPHUGU: Yes, they can, so that the loan can be paid off if anything happens to the customer that limits their ability to pay their debt.
For extra information on how you can become a better consumer, keep a lookout for more episodes from our Street Smart series and be sure to visit the Absa blog.
Other episodes in our Street Smart video series:
Absa’s Chelton Keppler chats about dealing with challenges to meet your vehicle-finance loan repayments.
Absa’s Sarvas Naidoo and CMH’s Joel Chetty about balloon payments.
Absa’s Fulufhelo Mandane and Hatfield VW Melrose’s Vleis Manyama explain the importance of getting and maintaining an acceptable credit score.
Absa’s Sbu Dhlamini explains the most pertinent terms in an instalment sale agreement. Understanding your instalment sale agreement [Part 1] and [Part 2]
Absa’s Michelle Moodley emphasises the importance of taking precautions to avoid falling into fraudsters’ traps. Vehicle Sales Fraud: What to look out for
Absa’s Fulufhelo Mandane discusses what you need to consider before you start shopping for a vehicle, the costs of ownership and your various finance options. Absa First-time Buyer Guide to Vehicle Finance
Absa’s Gordon Wood details how the new Aftermarket Guidelines, which were introduced in the motor industry last year, affect you as a vehicle owner. Absa’s Guide to Responsible Vehicle Ownership
Related content:
The New Normal, Podcast 3 – Time to revise your car insurance?
The New Normal, Podcast 2 – Car Dealerships of the Future
The New Normal, Podcast 1 – Changes in SA’s car-shopping patterns
