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5 things you need to know about insurance as a first-time car buyer

People can get confused between finding the right insurer to selecting the right deal and ensuring that they have the right amount of cover. Picture: Supplied

People can get confused between finding the right insurer to selecting the right deal and ensuring that they have the right amount of cover. Picture: Supplied

Published Apr 14, 2022

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For a first-time car buyer, the world of car insurance can be difficult to navigate.

People can get confused over finding the right insurer and selecting the right deal to ensuring that they have the right amount of cover.

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To avoid the confusion, here are five things you need to know about car insurance:

Is car insurance necessary?

“The short answer is yes,” said Bertus Visser, Chief Executive of Distribution at PSG Insure.

Car insurance is not only about a person’s driving abilities, but also about safeguarding against everyday hazards such as drunk driving, hijackings and theft.

What are the different types of cover?

Car insurance falls into three broad categories:

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  • Comprehensive: This policy provides cover against crime, weather damage or destruction, and if you’re involved in an accident.
  • Third party only: This policy provides cover in the event that you cause damage to or destroy someone else’s car. This type of cover does not include cover for your own car, so you will need to foot the bill for repairs or replacement.
  • Third-party with fire and theft insurance cover: This policy covers everything that is included in a third-party only policy, but includes fire, theft and hijacking. With this type of policy, you will not be covered against accidental damage with another vehicle or with a stationary object.

What is the excess and how does it work?

The excess is the financial obligation that a claimant has to pay before an insurance claim is honoured. The excess amount is determined by a person’s risk profile.

According to Visser, people also have the option of a voluntary excess, which allows an individual to set their own higher excess amount in order to lower their premium.

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Speak with an adviser to weigh up the pros and cons of each option.

What is a balloon payment, and is it insurable?

Balloon payment arrangements allow car buyers to pay relatively lower premiums and then pay a lump sum (balloon payment) at the end of a loan term.

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“If the car owner is in an accident before they have paid off the car, then the owner will be liable to pay off the balloon payment,” Visser said.

To help cover this cost, a person can apply for shortfall cover to make up the difference between the market value of the car and the amount that is still owing on the vehicle at the time of the accident. Shortfall cover will increase the premium on a policy.

How will the premium be determined?

Insurers base their premiums on each individual’s risk profile.

Factors that determine your risk profile include:

  • age
  • driving experience
  • claim history
  • average annual mileage
  • credit rating
  • the make, model and value of the car
  • geographic risk factors

By driving responsibly, avoiding making unnecessary claims and adding security measures to protect the car, lower premiums can be negotiated over time.

If you are buying a car using vehicle financing, most banks will require the new car to be insured before it can leave the dealership, as part of the loan agreement.

According to Visser, the most important tip is to speak to a financial adviser that can help negotiate the best deal, whilst ensuring you have adequate cover.

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