The Ins-and-outs of Car Insurance

Are you looking forward to owning a car one day? Or have you saved and been able to buy one? Isn’t it great to have a car to drive around in – what freedom!

Owning a car can be quite a life-changing event as you are able to travel around in your own time and this gives you a real sense of independence. But owning a car also comes with its own expenses and responsibilities.

When you purchase a car, you think, ‘This is it!’ You’ve achieved a huge goal and it has cost you a large sum of money. It will be one of the most expensive items you will buy in your lifetime (other than buying a home).

Sadly, though, cars cost money! You need to pay for petrol, services when you replace parts that have worn out, licences and, preferably, insurance.

When you have your household-contents insurance and your car insurance on the same policy, your premium will be cheaper than taking out stand-alone insurance.

If you have bought a car with a car loan you have to have car insurance. But many people cancel their car insurance shortly after they drive off the sales floor! If you don’t have a car loan you are not obliged to have car insurance. Many people don’t as they don’t want the added expense. But this can land you in debt!

According to a Sowetan news report from 2020, about seventy per cent of the approximately twelve million cars on South Africa’s roads are not insured. https://www.sowetanlive.co.za/business/money/2020-03-05-third-party-car-insurance-will-benefit-all

Not having adequate insurance on your car is a really bad idea, as Themba discovers. He had taken out insurance but only third-party insurance and not comprehensive cover. This means that he will have to use his own money to fix his car.

He is really lucky that it was only a ‘fender-bender’ but, even then, bumpers these days cost a fortune to fix!

Should he have had a more serious accident, in which his car was written off or badly damaged, he would have lost most, if not all, of the money he invested in it! Even if the accident had caused his air-bag to inflate (without much damage to his car), his car would be expensive to fix. What a waste of his money!

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Understanding licences and the Road Accident Fund

Car and driver’s licence
Every driver needs a valid driver’s licence and a valid car licence. A car needs to be relicensed every year. The cost of this depends on the size of the car you drive but it ranges from R400 to R1,000. This money goes towards building, maintaining and upgrading roads in your municipality.

A driver’s licence needs to be renewed every five years. The cost of this is around R250. You must have a valid South African driver’s licence because it’s a criminal offence to drive without one. You will be punished for not having one with fines and possibly imprisonment.

These licenses provide NO insurance. You will need to pay for car insurance.

If you don’t have a valid car or driver’s license but you have taken out car insurance your insurance will NOT pay your insurance claim until your license is renewed. If you drive a taxi, then you need to have an up-to-date PDP license (which covers you when you are transporting people in your vehicle).

The Road Accident Fund
Many people rely on the Road Accident Fund for any injuries that come from car accidents. The money for this fund comes from a levy paid on fuel – petrol or diesel. This covers the injuries or death of a person who is not one hundred percent responsible for the accident. Only serious injuries are covered “for pain, suffering and disfigurement in the case of bodily injury.” (www.raf.co.za)

This provides NO insurance for the car and nothing for you personally if you are responsible for the accident.

If you are uninsured and crash into someone else’s car, you are liable for the repairs to their car which can cost many thousands of rands. Even if the other person is insured, their insurance company will pursue you to recover the cost of the repairs.

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Different types of car insurance

Third-party only insurance
This is the most basic type of car insurance in South Africa. This covers the damage to the third party – in other words the person you bashed into.

You are the first party and your own car is not covered by the insurance. Your insurer (the second party) will pay for the cost of repairs to the other car (minus the excess) and you will be liable for the cost of your own repairs.

It is possible for the third party or their insurer to pursue you for the cost of the excess – the amount that you need to pay before the insurance pays the rest of the claim.

If there is no third party involved – you drive into a wall or lamp post – you will still need to pay for any damages yourself.

Third-party, fire and theft insurance
If you have taken third party, fire and theft insurance, then you will be covered for the destruction of your car in a fire or if it is stolen but, again, not if you are involved in an accident which was your fault. If the accident was caused by the other party, you will be covered by their third-party insurance if they have it!

You need to do thorough research when taking out either of these insurance policies. Cheaper is not always better. Find out which insurance companies pay out claims without too many obstructions. Read the fine print before signing any contract!

Third-party types of insurance are not recommended unless your car is quite old and isn’t driven around very much – and certainly not on long journeys when the risk of accidents is much higher.

This is the type of insurance that Themba had taken. Unfortunately, he will have to pay for the repairs to his own car. He is also liable to be pursued for the cost of the excess on the claim from the insurance provider of the third party. His trip to KFC was an expensive one! (More on excess payments later.)

Comprehensive car insurance
This covers all types of financial loss related to your car whether it be an accident, fire or theft as well as the cost of repairs to the other vehicle involved, even if the accident was your fault. It’s a great relief to have this type of cover because you know you won’t be financially liable (responsible) if you have an accident.

There will always be an excess to pay on your claim, though. Part of the reason for this excess is to discourage people from making fraudulent claims or for claiming for small amounts.

If your excess is higher than the value of the repairs or damage, then it is not worthwhile putting in a claim. For instance, if your excess is R3,000 but the repair costs R2,500 then there is no point putting in a claim.

But if the repairs are costly, then it would be worth your while to submit the claim and pay the excess amount. This is usually done by the insurance company retaining the excess amount and then paying the balance of the claim amount to you.

Remember that many insurance companies also offer no claim bonuses as another method of discouraging small claims and often they will adjust your premium (the amount you pay monthly) if you make a claim and are then considered to be a ‘higher risk’ client (see more on your risk profile below). You may need to weigh up the loss of a no claim bonus and increased premiums against the value of a claim.

Comprehensive insurance will also cover the value of your car at the time of the accident should it be written off (completely destroyed). This won’t buy you a new car, but it should cover the costs of a car of a similar make and age.

This is the most expensive form of insurance because it covers most eventualities. The cost varies considerably from one insurance company to another and costs depend on your risk profile. It is the best form of insurance, though. Quotes from different insurance companies are easily available on the internet. You will, again, need to do thorough research to find the best cover for your car and read the fine print before you sign.

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What is your risk profile?

Insurance is based on the idea of ‘risk’. How much risk are they taking in insuring you? Are you likely to have few or many accidents? If they don’t know you personally, how do they work this out?

● Your gender: Males tend to take more risks, so they have a higher risk profile than females.
● Your age: The younger you are, the more likely you are to take chances. Anyone under the age of twenty-five years old will have a high-risk profile.
● Your previous claims: The more claims you make, the higher your risk. This is why you lose your non-claim bonus should you claim.

The insurance company can use other elements to consider your risk but, as you can see, if you’re young and male your insurance premiums will be higher than if you are young and female. However, if you drive carefully, the older you get, the lower your premiums will be (other than annual increases).

Even though, at first, it might seem as if it is a waste of your money to take out car insurance, it really is not. It solves so many of the problems we have on our roads in South Africa. Too many people are driving fast or dangerously and the chances of having an accident are unfortunately extremely high.

Themba may well have paid a higher premium at this stage of his life. But, if he had paid for comprehensive insurance, most of the damage to his car would have been covered!