SA's No 1 Insurance Blog

Don’t you hate it?

You buy a home, right? You pay your bond for twenty years, let’s say R5, 000 a month, and down to the very last payment, you pay R5, 000.

Never mind the fact, that if you add up everything you’ve spent over those twenty years, you could have bought 3 homes.

Wouldn’t it have been nice if those bond repayments started dropping from year ten, so that your last payment was only a couple of hundred Rand?

But it’s the same with car and home insurance…

Firstly, it’s not cheap – especially if you’re young and have never had any insurance yet. It’s like applying for a loan and them asking you for your credit history. How on earth are you supposed to have a credit history when it’s the first time you’re applying for cover?

So right off the bat, they penalise you because you haven’t got insurance history.

For most of us the first thing we ever get to insure is our car…although with the cost of smartphones nowadays, I reckon this could well overtake cars for first time insurance buyers.

But anyway, getting back to cars… They quote you a steep price and tell you that you need to build up a no claims history in order to qualify for a cheaper cost.

With your back against the wall, grudgingly you accept their terms. Come the end of the year, they tell you your cost is going up by 10%. By the way, what happened to your ‘no claims’ bonus which would have made it cheaper?

And what about that other catch – the -so called ‘cash back’ bonus?

You pay your premiums – which go up every year by 10% regardless – in order to get some money back after 4 years. But have one claim during all that time and you can kiss the cash goodbye.

Which brings us to the biggest question in all of insurance history

Why is it that every year my car loses value BUT the cost of insurance either stays the same or goes up?

Have you noticed that it only goes down when you threaten to cancel?

It would make sense to pay less if most of the claims were for theft. But the truth is that most claims are accident related. So just because your car is 5 years old doesn’t mean  it’s going to be any cheaper to repair than this year’s model.

  • Panelbeaters don’t get cheaper every year. If you find one who does, let me know.
  • Spare parts aren’t getting cheaper either. Ask me, I know.
  • The number of accident claims could also be on the rise. These costs have to be covered. And since insurance is all about pooling risk, that means you and I have to help cover the cost. And the only way to do that is by increasing your cost.

So yes, we can understand that the annual cost would increase, but what about the monthly cost?

What if there was an insurer who was willing to drop your monthly cost in line with the drop in value of your car?

Turns out that King Price has done just that, but how does it work in practice?

So let’s say you’re insured with Company A:

Month Retail value Insured Value Monthly cost
January 120, 000 120, 000 R500
February 118, 800 120, 000 R500
March 117, 612 120, 000 R500
April 116, 435 120, 000 R500
May 115, 271 120, 000 R500
June 114, 118 120, 000 R500
July 112, 977 120, 000 R500
August 111, 847 120, 000 R500
September 110, 729 120, 000 R500
October 109, 622 120, 000 R500
November 108, 525 120, 000 R500
December 107, 440 120, 000 R500
January 106, 366 106, 366 R570

 

  • They offer to insure your R120, 000 car at R500 a month
  • After a year they drop the value of your car to R106, 366 but raise the cost to R570 a month regardless of the fact that you never claimed once during the year
  • So you’re paying for a car worth R120, 000 but if it gets stolen in December, they’ll only pay you R107, 440?

Here’s how it works at King Price Insurance:

Month Retail value Insured Value Monthly cost
January 120, 000 120, 000 R500
February 118, 800 118, 800 R495
March 117, 612 117, 612 R490
April 116, 435 116, 435 R485
May 115, 271 115, 271 R480
June 114, 118 114, 118 R475
July 112, 977 112, 977 R470
August 111, 847 111, 847 R465
September 110, 729 110, 729 R460
October 109, 622 109, 622 R455
November 108, 525 108, 525 R450
December 107, 440 107, 440 R445
January 106, 366 106, 366 R495

Okay, this is purely for illustration purposes (You’d need to get an actual quote), but it does give you an idea of how it works.

Of course, none of this makes any difference if King Price insurance isn’t competitive in the first place.

By this I mean, if Company A is offering the insurance at R500 a month while King Price Insurance offers you the same insurance at R600 a month.

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Until next time.

The InsuranceFundi Team