Nobody enjoys paying for insurance, and motor insurance is no exception. Why do you need it anyway? Well, consider the possibility of being in an accident, even if it wasn’t your fault, or having your car stolen. Who will cover the costs of the repairs to, or worse, the replacement of your vehicle? Unless you have loads of savings or wealthy friends, motor insurance may be the solution.
In a nutshell…
Motor insurance gives you peace of mind about your car. You pay a fixed monthly premium, and in the event of an accident, fire, or theft, the insurer will repair or replace your car.
Sometimes buying motor insurance isn’t optional. For example, if you finance your vehicle through a loan, the bank (or other lending institution) may well require insurance before approving your loan.
This guide will cover the basics of motor insurance: how it works and what to consider when buying it.
So let’s discuss some of the details to help you make wise purchasing decisions…
Types of motor insurance There are three basic types of motor insurance, from very basic to comprehensive.
TIP: It’s important to know what you’re covered for, because that not only determines how much you pay for your insurance, but also what you get out when you make a claim.
Type of cover What it covers… What it won’t cover… Cost? Comprehensive This is the broadest type of cover, covering most risks: from theft and hijacking to loss or damage caused by accidents, fire, hail, floods etc. Will also cover costs to repair another driver’s car (third party) after an accident caused by you. Depreciation, wear and tear, mechanical or electrical breakdown. Each insurer may include specific events that they will not cover, e.g. hail damage. Make sure you read your policy carefully to check what will not be covered. Most Third party, fire and theft (TFT) Covers you if your car is stolen or catches fire. Also covers losses to third parties Costs to repair your own car following an accident In-between Third party Only covers the cost of repairs to the other person’s car following an accident caused by you. Any damage to or theft of your own car. Least Warning: certain acts on your part may result in your claim not being paid out, regardless of the type of cover you choose. You may lose your cover if you are:
grossly negligent (such as leaving keys in your car or not locking your car), driving illegally (such as driving over speed limit, under influence of alcohol or without license), driving in an unlicensed or unroadworthy car. What do you actually get paid? Well that depends on whether the car is repairable or not.
Event Action by insurer Repairable damage Insurer will pay for all repair costs (less any excess or first-amount payable) Damage beyond repair (full writeoff) Insurer will pay out the entire insured value, which you can use to repay your loan and/or pay for a new car. This is the total value you are covered for and you can choose between one of 4 different options (see below). Theft Same as full write-off The maximum amount paid on a given claim is known as the insured value. You can choose from:
Insured value option you choose What you get if car is written off or stolen Book value (lowest) What your car is worth in accounting terms (depreciating monthly) Trade value What a car dealer would pay you to trade in your car (an undamaged version of your car that is …) Market value Somewhere between retail and trade value Retail value (highest) What you would pay a car dealer to buy your car from them TIP: More cover is generally better, but your premium will be higher. In some cases you may be required to buy a certain level of insurance; for example, if you buy your car on credit.
Shopping around and comparing
Tip! Products offered by different insurers may not be the same.
Be careful of certain “exclusions” in your policy’s terms and conditions. An exclusion is a type of claim that your policy will not cover, such as hail damage. One insurer’s cover may therefore seem cheaper than another’s because they’ve excluded some risks, hence providing less cover.
Also be aware of any limits that apply. For example, there may be a limit on how much will be paid to cover a third party’s damage in an accident caused by you.
TIP: Remember to read the fine print (terms and conditions) so there are no surprises!
How can you reduce your premiums?
Reduce your risk Reduce unnecessary driving, park your car in a safe place or fit a tracking device. Ask your insurer how you can reduce your risk so as to reduce your premiums Communicate with your insurer If you think they have not taken something into account, explain to them why your premium should be lower. Phone insurer each year Your car’s value decreases over time, so make sure your premium accounts for this because you will never be paid more than the value of the car. Some providers actually offer reducing premiums as a standard feature. Increase excess (but be careful!) An excess is the amount you pay on each claim. For example, if you have an accident which costs R10 000 to repair and your policy has a R2 000 excess, you will pay R2 000 and your insurer will pay the remaining R8 000.You can choose to include a higher excess as a way to reduce your premiums. But you would then need to ensure that you have the necessary cash available when you make a claim. It is not always a good idea to go for this option, especially if you do not have savings to cover the increased excess. Driving behaviour trackers Some insurers give you the option to add a tracking device to your car, where the device can give the insurer details about your driving habits (braking, acceleration, cornering) and details of where you drive the car. Your premium is then adjusted each month depending on how risky your behaviour was during that month. So if you are a safe driver, you may want to consider this option.