We were asked this question just the other day: Can I insure my car old for new?
The answer to that is ‘no you can’t, but it’s still a great question.
Think about it…
You’re driving a four-year-old Corolla. Five more payments and it’s yours.
Two days later it gets stolen. Lucky for you, you’re insured for full retail value. But full retail value means your insurance company will only pay out to you what a similar four-year-old Corolla is selling for today on the dealer’s floor. Your problem is that a brand new one costs double that amount which means you’ll have to pay a deposit and finance the rest. Wouldn’t it be great to have your claim paid and then be able to walk into a dealership and buy a brand new one?
Here is why it won’t happen
Insurance companies refer to this as ‘betterment’. In other words, by replacing your four-year-old Corolla with a brand new one, you’d be in a better position than you were previously.
And think of the temptation – Wouldn’t arranging to have your four-year-old Corolla stolen be a great way to get hold of a brand-new car?
You see, insurance is built upon the basis of ‘putting you in the same position as you were prior to the loss.’
But who wants to go out and buy the same car as you had before? And even if you did, you’d still have to pay in because there’s the little matter of the excess which gets deducted before paying your claim?
Nine times out of ten, you are worse off after a claim than before. That’s why some people overstate their claims. This is fraud by the way. The other temptation is to do it this way.
What if you insure your property at two separate insurance companies?
Basically, what this means is insuring your assets, let’s say for instance your home contents, at two separate insurance companies.
Firstly, there’s no law preventing you from doing this. You can even submit claims at both companies legally, but…that doesn’t mean you’ll get paid out double the amount.
If your loss is R50,000, then your insurers would only pay the R50,000. You have the option of claiming against just one of the insurance companies or against both. Usually, the two insurance companies would each pay a proportionate amount of your loss. This is known as the principle of contribution.
How would they know if you didn’t tell them?
Because they speak to each other. And you’d come out with egg on your face for not telling them you’re also insured elsewhere.
Why insuring at two companies probably isn’t a good idea
Come to think of it, you’d probably be worse off by insuring at two different insurance companies. That’s because most insurance companies use a flat excess structure of say for example, a R1,000 per claim regardless of the size of the claim.
You’d have to pay a flat excess of R1,000 at both of the insurance companies only to get the same R50,000 paid out to you.
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