You get what you pay for when it comes to car insurance

When it comes to insurance, there is no excuse for ignorance or misconception

The year has not been kind on our economy and as consumers we’re all feeling the pinch of a weakened rand, crippling drought, rising fuel, electricity and food prices and, of course, increased interest rates. So what do we do? We self-preserve to ride out the storm.

We eat at home a little more, we change our DStv package to a cheaper option, we downsize the 4-Series GC to a second-hand 3-Series and we either shop around for better insurance, or completely cancel it. This last bit – not good.

If this alarms you, it shouldn’t. It’s a very common decision that consumers make especially amidst these trying times. “As it is, only 35% of the cars on our roads are insured – and it’s an ever-decreasing percentage.” Wynand Van Vuuren from King Price Insurance says.

In agreement  is Johan Boshoff from Outsurance. “We’ve definitely seen an increase in straight cancellations and non-payment cancellations because of the tough economic times. Obviously if an insurer can’t collect their monthly premiums, then that customer’s insurance policy is terminated.”

The biggest problem with defaulting on your premiums is that it negatively affects your credit rating as well as your insurance risk profile, making it even more difficult and more expensive for you to obtain credit or insurance in the future.

The next problem with cancelling your insurance is that very fact: you are uninsured. If you happen to be involved in a collision, you have absolutely no cover – no cover for your own car nor the car into which you’ve just crashed. While you may have cancelled your insurance to save a few hundred rands every month, the cost of paying off a wrecked car, repairing the said car and repairing the third party’s car will cripple you. If you thought downsizing from a 4-Series to a 3-series was tough, try downsizing from a 3-bedroom cluster to moving back in with your parents.

Being uninsured is possibly the worst idea if you own a car, but here are a few more of the common misconceptions about saving on your insurance:

Going for the cheapest option: Van Vuuren puts it this way: “The problem with evaluating your options solely on price is that you may not be insured for everything you need to be insured for.”

Philippa Wild agrees with this sentiment and says: “Individuals who shop around often tend to be incorrectly insured. It may seem like a good idea to reduce or remove cover to save money but often this may, for example, lead to a driver being unable to afford a loss event for which they then have no cover.”

A loss event is exactly that – when you lose your car as a complete write-off or it gets stolen or is rendered unrepairable after a freak hailstorm in the middle of December.

Removing key benefits within your cover/increasing your excess: There is merit in taking these steps to reduce your premiums. If you have comprehensive insurance cover with a car rental option and you decide to remove this cover, then this can affect your premium. But once again, just remember what it could cost you in the event of a collision. There are instances in which you could wait four weeks or more for your vehicle to be repaired and in those four weeks, you could be without a car. So whilst this is an option, ensure you have a workable and affordable solution. The same is true for increasing your excess. There isn’t any point in increasing your excess to so high an amount that paying it would in itself be too hefty a price tag.

Misrepresentation: It’s very important to answer all underwriting questions with absolute honesty. Misrepresentation includes lying about who the primary driver of the car is or lying about where the car parks at night. This may save you some money on your premiums, but once again when it comes to claiming for something, insurers will conduct thorough investigations and the consequences are not worth the risk. If you are found guilty of misrepresentation, you won’t receive a pay-out, you will be found guilty of fraud and most often, you will be deemed uninsurable by the industry and it will be incredibly difficult to get any insurance in the future.

Advice from insurers

  • Ensure you have cover. Do NOT drive without insurance of some kind. There are some limited cover options if you absolutely cannot afford much. Some of these include third party cover for those desperate times when you crash into an expensive supercar.
  • Loyalty to insurers is a powerful negotiating tool. Direct insurers incur all their expenses up front and therefore it becomes easier to charge you less per month the longer they keep you. So their focus is on keeping you and the longer you stay with them, the more open they are to assisting you with cheaper premiums. Simply put – it’s cheaper to call your insurer to negotiate a better deal than to hop around.
  • Reduce home contents insurance: Statistics show that motor vehicle risk is much higher than home owner risk and that is why the bulk of your premium is made up of motor vehicle cover. However, if you are insured for both car and home, consider reducing your home content cover instead of excluding cover from your car. This may not save you a large amount, but every penny counts and you’ll still retain good cover for the higher risk asset.
  • Improve your risk profile: Exactly how you do this is dependant on you calling your insurer and having the conversation to determine what factors weigh heavily on your risk profile. They’ll be able to tell you exactly how your premium is made up and how you can actually reduce your premiums. In addition to this, try not to claim for absolutely everything that may go wrong.
  • Limit making unnecessary claims: The ability to make a claim when something goes wrong is the very crux of insurance, but every time you make a claim, your risk profile is adversely affected and your premiums go up. Consider that you have a small fender-bender and the damage to repair it will cost you R6 000 from your trusty repairer down the road. Claiming for this amount will result in you having to pay your excess amount, possibly R4 000. Plus your premiums will go up by approximately 20% thereafter. That R6 000 won’t look so expensive after a few months of paying a much higher premium.
  • Can you afford the lifestyle you’re living: “Customers should just buy what they can afford. . . and what they can afford to insure,” says Philippa Wild from Discovery Insure. It’s a sobering thought isn’t it? Considering ways to save on your insurance premium for your 4-Series is one thing. But perhaps, considering whether you actually can afford ownership of a 4-Series is possibly a more important consideration. Live within your means.

– Avon Middleton