News Release

June 2018

Motor insurance tips – how to avoid common pitfalls

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.

“Many people find the insurance aspect of securing their assets against theft, loss or damage overwhelming as there are so many variations of cover and costs available. Without the financial experience of what insurance is all about, a D-I-Y approach is challenging when trying to figure out why the quotes you receive vary so radically in premium price, what’s covered and more crucially what is not covered, what the terms and conditions of the cover are, if any exclusions exist and why, and how much your excess will be – the cash sum you are liable for upfront if and when you need to claim,” explains Mandy Barrett of insurance brokerage Aon South Africa.

It’s one of the reasons why getting independent and impartial advice from a professional broker to negotiate on your behalf will be the very best financial decision you can make to ensure that your car and any extras are properly insured, and that you won’t face any nasty surprises should you need to claim.

“A broker is there to protect your best interests and ensure that your needs are taken care of, and that the insurance cover you opt for is the right fit for your unique needs and circumstances. The true value of broker really comes to bear when you have a complex claim or a dispute with an insurer - a professional broker will intervene on your behalf to handle the claims negotiations and ensure you get a fair settlement,” adds Mandy.

Aon provides some invaluable tips that will help you when assessing your motor insurance:

  • Do the insurance research before you buy a vehicle

This may affect your choice of vehicle in the end when one looks at things like affordability, service costs, parts availability, required security measures and crime stats. There are so many aspects that affect your motor insurance, ranging from the make and model of the vehicle, through to the cost of parts and availability, whether you need car hire in the event of an accident, what the vehicle is utilised for, your driver profile and age and even your credit rating. Be aware of the type of security precautions you will need, such as a tracking device as you need to factor the ongoing subscription cost into your monthly expenses. With all this to consider, it can be a minefield trying to navigate the terms of your motor insurance agreement without the insights of an experienced eye.

  • 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 a simple example, you would have to fork out R50k as an excess, cash straight from your pocket, if your car was stolen or damaged in an accident. This type of cover is often a case of penny wise and pound foolish – you may save R200 a month on premiums compared with other insurers, but 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. Protect yourself from personal liability claims

Besides the obvious cover for accident damage and theft, your motor insurance also provides you with personal liability protection which is embedded in your policy. Personal liability is like having an umbrella on a cloudy day. You might not need it, but in a sudden heavy downpour, you’ll be grateful you have it. This cover protects you against a third party suing you in your personal capacity for financial loss, physical injury or death. In the event of an accident, a passenger or any other party affected by the accident could sue you for negligence or intent, and here the legal defence costs and settlement could run into millions of Rands. Although the Road Accident Fund (RAF) exists for people injured in a road accident and is the typical route many people will take, the fund has certain limitations. There is nothing stopping a third party from coming after you for compensation, especially where they can prove trauma or emotional shock (not covered under the RAF) as a result of witnessing an accident where someone was killed or severely injured, and you were party to it.

  • Don’t assume you are covered for everything

Don’t assume you are covered for every eventuality. Certain events are not always automatically covered on a standard motor vehicle insurance agreement to bring down costs, and such covers may need to be purchased at an additional premium – typically items such as scratch and dent cover, tyre cover, hail damage cover and so on. Finding out that hail cover was excluded on your policy after a Gauteng hailstorm has done a swiss-cheese number on your car can prove financially devastating. Likewise, remember to specify any add-ons to your vehicle that are not standard features on the vehicle such as alloy mag wheels or a specific sound system, nudge bars and side steps, a GPS navigator and additional lights. These all add additional value to the vehicle and need to be accounted for in your sum insured. If they are not specified, they won’t be covered.

  • 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.

“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 does go 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.

“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 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.

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Tom Hatcher 7 Jun 2014 14:58 Comments Policy
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