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File Image: IOL

Know what you have, choose what you need: fine tune your car insurance policy

By Opinion Time of article published Feb 12, 2021

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By Serapelo Mofokeng

On any reckoning, 2020 presented us all with a bewildering set of challenges, not the least of which were financial ones. As the lockdown continues, together with the economic uncertainty, it seems sensible and even essential to reduce overheads but it’s important not to take unwise decisions that could expose you to more risk in the long run.

As the new tax year is about to begin, many people are looking for ways to fine-tune their finances for the year ahead. Car insurance is one of the first areas to consider but, as always, being informed is vital.

That’s particularly true when it comes to considering how best to mitigate risks associated with your vehicle while reducing expenses. Cars are substantial assets and can expose you to all sorts of risks and expenses – it’s easy to make the wrong decision.

There are two broad questions to be addressed:

What level of insurance cover do I need? Vehicle insurance covers damage to your vehicle, as well as other vehicles involved in an incident with the insured vehicle. The amount and type of cover you need will be related to the value of your vehicle and how often you use it – broadly speaking, these factors speak to the risks you are exposed to. The other prime consideration, of course, is what you can afford.

There are three main types of cover:

  • Comprehensive provides the widest cover, including theft and hijacking, damages due to an accident, fire or explosion and natural disasters like hail and floods. Comprehensive insurance cover also includes cover for damage to the vehicle’s windows and liability to other parties, as well as intentional damage to your vehicle (other than your own intentional damage).
  • Third party, fire and theft limits your cover to theft, fire-related damages and damages caused to another vehicle during an accident caused by you. Other damage to the insured vehicle is not covered.
  • Total loss covers the vehicle only when it is written off, stolen or hijacked (and not recovered).

The next question is which insurer to choose. Key considerations include the benefits offered, the reputation for customer service, and how user-friendly the claims process is. Other benefits to look for include 24-hour roadside emergency service and a drive-home service.

If your vehicle is financed, it’s important to ensure that the level of cover chosen covers any money owed to the finance house. In this instance, including credit short-fall cover is highly recommended.

A further important variable is the value for which the vehicle is insured – the retail value, which is recommended, is the average current selling price (on a dealer’s floor) as per the TransUnion Dealers Guide, or the market value, which is the average between the vehicle's retail and trade values. The lower the value, the lower the premium but the less you will get out in the event of a total loss of your vehicle. One obvious step is to understand what your insurer’s policy entails if you are continuing to work from home.

Do I need to purchase additional cover? Insurance covers damage to your vehicle as well as those of third parties in the event of an accident – it does not cover ongoing expenses related to the care and maintenance of your vehicle, nor for the unexpected failure of a major part.

There are basically three types of products you can purchase to deal with these expenses – but read the small print carefully:

Service plans cover the costs of parts and labour needed for the vehicle to be serviced. New vehicles often come with a service plan, but they can be purchased or extended. Service plans cover the replacement of fluids such as brake and clutch fluids, coolants, oil, gearbox oil; all filters; spark plugs; tyre rotations and cam belts. They do not cover replacement or repair of defective parts, or parts that need to be replaced owing to normal wear and tear (think clutches, exhausts, headlight globes, brake pads, shock absorbers and so on).

Maintenance plans typically include all the benefits of the service plan but would also include the cost of replacing or repairing defective parts, or parts that need to be replaced owing to normal wear and tear. If your car has a service plan, you could upgrade it to a maintenance plan. Important considerations include how old the vehicle is and how expensive its parts are.

Warranties are the manufacturer’s guarantee that the parts used in the vehicle are up to standard. They are normally limited in scope and will reduce in time and as the vehicle clocks up more mileage. Warranties are only valid if the vehicle is repaired or serviced by a reputable service provider and at the correct intervals. One can purchase an extended manufacturer’s warranty to provide cover for all the vehicle’s working parts once the manufacturer’s warranty has expired, including the air conditioner, transmission, cooling system, electrical components and engine, to name a few.

In conclusion, you definitely need insurance of some kind, and getting cover for the expenses of keeping the vehicle in good shape seems advisable. The trick is balancing benefits against what you can afford but your decision must consider the downside.

Serapelo Mofokeng is the Head of Client Services at MiWay Insurance

PERSONAL FINANCE

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