Buying a car doesn’t only involve raising the capital to purchase it, there is another major cost to consider – monthly car insurance premiums. Finding the right insurance for you can seem like a monumental task, but it is worth the effort because as much as you don't want to risk driving around in an un- or underinsured car, you shouldn't have to pay for extra coverage you don’t really need.
First, let’s find out what the different types of insurance are that you can choose from. Bear in mind that every insurance company offers something slightly different under these same umbrellas.
This includes accidental loss or damage to a vehicle – think an accident, theft or if you live in Gauteng, a damaging hail storm. Even if you are the cause of an accident, this policy will insure both you and the third party involved.
Just as the name suggests, this option is limited to loss or damage due to fire and theft. It also covers you against third party claims, in cases where you are the cause of the accident and you’re legally liable for the damage to the other person’s car.
This is a basic type of insurance that will cover you if you cause an accident and you are liable to pay for the damage to another person’s vehicle.
With these options in mind, here are a few things to consider when shopping for car insurance.
Do your homework
This is probably the most important piece of advice when shopping for anything really, but especially when it comes to car insurance. Many people end up overpaying because they're convinced to purchase more insurance coverage than they actually need.
Research the companies that you are considering. Contact the South African Insurance Association (SAIA) to inquire whether the insurer is in fact licenced.
Read ALL the fine print before you sign anything. If you don’t understand something, ask for a comprehensive explanation. Ask friends and family members you trust if there are still things you do not understand.
Low can mean high
Beware of an almost unbelievably low premium, because this usually equates to a very high excess (the deposit you pay when a claim gets paid out by your insurer). Find out exactly what your excess will be and make sure you would actually be able to afford it. And, be sure to check for any additional costs you might be required to cover in the event that you put in a claim. If you are not risk averse, you can, of course, opt for a higher excess to decrease your monthly insurance payments.
Be sure to ask about implications of someone else driving your car, you need to stipulate an extra driver in an insurance policy to ensure you are covered if something were to happen while they are driving your vehicle.
Find out just how easy (or difficult) the insurance company’s claim process is. Read reviews online of other people’s experiences – this should give you an idea of just how good, average or bad a company you're dealing with.
Be sensible, but economical
If things sound too good to be true, they usually are. Shop around with legitimate insurance companies and get the deal that is right for you.
Before settling on one company, get a few quotes and compare them. Then go back to the ones you are interested in and ask if you are eligible for a discount if you combine household insurance with a vehicle policy.
Ask if there are any optional covers on your policy that can be removed to lower your premium. Find out if the company offers any value-added benefits that will assist you in the case of an emergency or when you need to get around without a car of your own for a while. Find out how flexible the policy is: are you able to change it at any time... does the insurer offer any rewards for good driving behaviour or claim-free years?
Find out what will lower your premium rates. Things such as safety features on your car, your age, your address, your driving habits, if your car is parked securely at night, and cars that are considered a low theft risk.
And be wary of policy sliding, which is what happens when agents attempt to slip additional policy coverage into your package without your knowledge or approval, it increases your rates significantly.
Don't get scammed
There are loads of scams out there. Here are a few examples below:
If your vehicle is written off, your policy may cover a replacement or the cash value of an equivalent car. Low-balling is when car insurance providers offer a deceptive bid by understating the car’s condition with imaginary complaints or they estimate the value of your car by using a “comparable” vehicle with higher mileage. Be sure to keep copies of all your scheduled services to prove your current mileage.
These are fake insurance agents who offer unrealistic deals. Again, check with the SAIA before signing anything or handing over any money.
Renewal hike prices
A really tempting introductory offer may be followed by a price-hike and little to no explanation as to why such an increase in your premium is warranted. Remember to read the fine print! It may all sound very complicated and laborious, but you don’t want to end up in a bad situation that could have been prevented if you had just done a little bit of research.
This might contradict everything written above, but not everyone is actually out to scam you. But one thing you need to know is what your car is actually insured for because you don’t want to end up being underinsured. What is the difference between retail, market value and trade-in?
The retail value is what your car's asking price would be if you to buy it from a dealership. The retail price is usually the closest value to the replacement cost of the car.
The trade or book value of a motor vehicle represents the average price that a dealership would pay for your car given its specification and condition.
The market value of a car is almost always lower than the retail value and takes into account a number of variables, including mileage, vehicle condition, service history and accident reports. If you were to sell your car privately, the market value would be the price that you could likely sell it for.
So, which should you choose? Many insurance companies recommend that clients insure their cars for its replacement value. In the case of older cars, this would amount to the retail value. However, in a total loss scenario where your car is either stolen or written off, it is not often that you will receive a sum of money that will allow you to purchase the exact same car you had. This is due to the fact that vehicle prices are constantly changing and don't forget the excess you will be responsible for.
Consider that retail value is greater than market value, which is greater than trade-in value and as a result, your premium can be higher or lower. Be sure to chat with your insurer about which will be best suited to your car and to your budget. You don’t want to be left with little to no money in the event your car is stolen or written off.
This is the last piece of advice we have regarding the insurance process, but it is an important one. Don't let your policy blindly roll over when the renewal date arrives.
Every year you need to check in with your insurance provider and make amendments to your policy that fit your current situation. Cars devalue in price so if you have insured your car for a retail value, then that should be altered each year, as the car will have depreciated.