2012 is upon us… and while the year is but an infant, now is the perfect time to run through your insurance schedule and make sure your car is insured at the right value.
Why is now the perfect time? Well, it is a new year and your car is a year older, which means it’s lost some value (and brings new meaning to the words ‘Happy New Year’).
If there’s one thing which is a waste of money, it’s insuring your car at a R100, 000 when it’s only worth R90, 000. We both know that the car and home insurance company is only going to pay the R90, 000.
This, of course, raises the question of why your insurance premium keeps going up while your car’s value keeps going down.
Let’s face it, as your car goes down in value, the amount at risk to the insurance companies also goes down. So it just makes sense that the amount you pay for the lower amount at risk should also decrease, shouldn’t it?
The problem comes in with the panel beating side of things…
Now I don’t have any panel beaters as clients, but I can’t think of these guys getting cheaper and cheaper every year. The price of labour goes up every year as does the cost of replacement parts.
This is why insurance companies ‘write off’ vehicles – Usually if the cost of repairing exceeds 50% (on older cars) and 70% (on newer cars) of the value of the car.
Obviously claims experience differs from one insurance company to the next, but I know one company where the total loss ratio equals 27% of all their costs. The remaining 73% of their costs is made up of spare parts, towing, labour, windscreen expenses, etc.
And don’t think because you dropped the insured value of your vehicle to current market value that your premium will necessarily go down! You might, in fact, even find it your premium going up depending on your insurance company’s claims experience in the past year.
What you also need to know is that some companies automatically readjust your car’s insured value every year while other companies rely on either you or your broker to adjust the value.
This raises the question…
“But my insurance schedule only says ‘retail value’, so how do I know how much it’s insured for?”
Retail value is simply the value a dealer would sell your vehicle for on their showroom floor. You can always phone your dealer to get this value.
Trade-in value is the amount a dealer would offer you for your existing vehicle.
Market value is the difference between retail and trade-in value.
When should you insure for retail versus market value?
I’d say that with cars younger than three years, it just makes sense to insure at retail value. Older cars can be insured at market value.
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Until next time.
The InsuranceFundi Team