Understanding car insurance values
What is important to know when picking your coverage is what your car's value is and what the insurance companies think it is.
Car theft is a reality in South Africa and it is crucial that you are properly insured to avoid undue losses.
The latest series of quarterly crime statistics show that 5 119 cars (equal to 57 a day) were hijacked between January and March across South Africa this year.
And there is always the threat of accidents and other damages to your car too.
So car insurance is a necessity… but you already know that.
What is important to know when picking your coverage is what your car’s value is and what the insurance companies think it is.
A difference between the two can leave you underinsured if you are not careful.
How are cars valued?
There are three different valuations you might hear, which are the trade-in, retail and market values.
The trade-in (or ‘book’) value is the amount a car dealership would pay when you trade in a car in. This is the lowest you can insure your car for.
Retail value is the amount a dealership would get if they sold your car and this is typically the highest insurance value.
Market value is generally the price agreed between a buyer and seller, but refers to the average between trade and retail value when talking in reference to car insurance.
Understanding insurance
Insurers will often opt for the market value when selling you insurance, because the premiums will be lower and more attractive to the client.
The downside is that there may be a gap between that valuation and the the cost of an equivalent replacement car.
If you can afford it, then it is better to insure at the retail value, which would generally allow you to buy a like-for-like replacement car at no extra cost.
You can also take separate credit shortfall insurance, which would cover the difference between your insurance payout and the outstanding balance on your loan.
Add-ons to your car, such as roof racks or leather seats, should similarly be discussed with your insurer as they will not be included in the general valuation.
Source: JustMoney.
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