Thousands of South African motorists are either over or under insured! This dire warning comes from Darryl Jacobson, managing director of True Price. Both consequences can be dire … especially if a car is stolen or written off. Naturally, being over insured also means that motorists are throwing money – hundreds if not thousands of rands – down the drain!
Jacobson has based his warning on feedback received from users of trueprice.co.za. “We have already provided thousands upon thousands of free vehicle evaluations to motorists. Many of our customers are genuinely surprised to see what their cars will sell for on auction,” he reveals.
In many cases, the insured value of the car is completely different to the price on auction. Jacobson says that this is completely wrong. “When you insure your car, you want to be able to replace it if it’s stolen. Say you’re driving a 2015 Volkswagen Polo Vivo and it’s stolen. In this instance, you want to be able to acquire another Volkswagen Polo Vivo – of similar age and in similar condition. That’s the whole idea of insurance,” he points out.
However, in many cases, this simply won’t happen. “Many of our customers are over or under insured – and the consequences in both instances are dire. For instance, we have a client with a 2012 Fiat 500. She is paying a premium based on a value of R95 000,” Jacobson reveals.
This value is scandalous, he contends – especially when one considers that the real value of the car is only R66 000. “I’m saying that this is the real value because, were her Fiat to be stolen, she could acquire a near-identical car for R66 000. That’s what they go for on auction. Accordingly, she is completely over insured! She’s wasting money each and every month!” Jacobson explains.
In the case of the Fiat 500, so-called “trade value” of the car is R73 000 while the “retail value” is R85 000. “Accordingly, were the car to be stolen, the owner would only get about R79 000 – or the ´market value´ – from her insurer. Even if we ignore auction values (which, I believe, would be a big mistake), that driver is still completely over insured!” Jacobson stresses. (For an explanation of these values, see the note at the end of this article.)
This is the case with many of the motorists who visit trueprice.co.za. “It’s alarming to see how many people are over insured. They don’t realise that a car is a depreciating asset. Yet, when their vehicle insurance premiums increase significantly year after year, the alarm bells don’t go off – and they most certainly should!” he advises.
Other clients are under insured. “We have a client with a 2006 Toyota Corolla. Her car is insured for R40 000. Trade is about R44 000 on that car and retail is about R50 000. Were her car to be stolen, her insurer would probably give her about R47 000 to acquire another car (because this is the market value). The challenge, however, is that it would be most unlikely that she would be able to find a similar car for R47 000. Those cars attract a premium on auction; the same car would probably cost her about R67 000. Hence, that’s what the agreed insured value should be,” he explains.
Another factor to take into account when it comes to vehicle insurance is the price point at which the insurance company will write off your car. “Take that 2006 Corolla again. Were the driver to have an accident, incurring about R45 000 worth of damage, the insurance company would definitely write it off and give the client R47 000. Meanwhile it could actually be worthwhile repairing the car – because there’s no way you can replace it for R47 000,” notes Jacobson. Thus, the lower the insured value, the greater the chance of the car being written off in the event of an accident.
But what’s the solution? You need to shop around for car insurance. “Some insurers won’t budge; they will only insure your car for so-called ‘book value’ – which may or may not be appropriate to the value of the car. Others will insure a vehicle for a mutually agreed value – say, R67 000 for the Corolla, for instance,” Jacobson reports.
It’s very important, though, to get an accurate indication of what your car is worth – and that’s where trueprice.co.za comes into play. “Visit our site and request a totally free valuation. It only takes a couple of minutes. This will enable you to make an educated and informed decision when it comes to insuring your car,” Jacobson points out.
He stresses that it’s important not to under insure your car. “Say, for instance, you buy a second-hand car for a steal – R40 000. The book value is R60 000. But you chat to the insurance company and end up with a mutually agreed value of R50 000. Obviously, were the vehicle to be stolen, you would only receive R50 000 in compensation – and not the book value of R60 000. You would need to be completely sure that you can replace your car for R50 000 – otherwise you will end up high and dry,” warns Jacobson.
Once you have got an accurate, free vehicle evaluation, Jacobson suggests contacting a number of insurers for a realistic quotation. “If this process intimidates you, you could appoint a knowledgeable and professional broker. Even if you do go this route, it’s still important for you to check on the value of your vehicle before renewing your premium each year (you can do that at www.trueprice.co.za for free). Don’t just rely on the broker. Chances are good that the value has dropped – if it is not an exotic or classic car. This could mean that your premiums actually drop or, at worst, remain the same,” says Jacobson.
The message is clear: just do a little bit of homework (it’s effortless) to ensure that you’re not over or under insured.
Trade value is the price that a dealer will pay for a car.
Retail value is the price at which a dealer will sell a used car.
Market value is the average between the retail and trade value of a vehicle.