16 October 2013: High household debt levels, combined with rising mobility costs for motorists, have raised concerns that many South African motor vehicle owners may be considering cancelling their motor insurance policies as a way to save money.
Stephen Vermaak, General Manager: Insurance at WesBank, South Africa’s leading moveable asset-based financial solutions provider, says the increasing price of fuel, along with other factors such as running and maintenance costs, is having an impact on a motorist’s overall monthly ‘mobility costs basket’.
However, he says that in the event of an accident or theft of the vehicle, this would place them under even greater financial strain, so it remains critically important for motorists to ensure they are adequately insured.
“Cancelling car insurance while the vehicle is under finance is not a viable option – no matter how tight times may become.”
This is highlighted by the fact that most accredited service providers of vehicle finance will require that while a car is under finance, comprehensive insurance – covering theft, third party, fire and accidental damage – must be in place before the vehicle will be released to the new owner.
“Many consumers do not comprehend the severity of third party risk, which is covered in a comprehensive policy. For example if you accidentally kill someone, the victim’s family can lodge a claim involving millions of Rands against you, in which case the third party cover will protect you from potentially losing everything.”
He also says it is crucial to provide accurate information during the application process and to ensure you read the fine print, especially regarding the excess. “The calculations of excesses and premiums are based on several factors, including the age and risk profile of the driver. It is also important to check your policy for clauses allowing for the excess to be increased in certain events, such as the time of day that the accident occurs as well as hijackings.
On a practical note, Vermaak says consumers should note that a policy with lower premiums may be subject to a higher excess during a claim phase. “It might therefore be useful to consider taking out a slightly higher premium with a lower excess, which may benefit you in the long run.”
Vermaak says the insurance industry has also developed value added products to fill certain insurance gaps and help consumers according to their unique needs. “These products include credit protection policies, which cover debts that you may have at the time of your death, permanent or temporary disability, retrenchment or dread disease. There are a number of variations on this type of insurance product, so getting advice from an accredited financial adviser is recommended.”
Other types of insurance will protect you in the event of a total loss, or offer you protection from the effects of vehicle depreciation. “So, for example, if your car is insured for its Market value, that value might be less than the outstanding amount on your finance agreement. In such a case, in the event of an accident, you will have a shortfall with your financier after the insurance has paid out. To avoid this, you can take out a policy that covers you for such a shortfall.”
He adds that when buying a used car, if it doesn’t come with a factory warranty, or a service or maintenance plan, you can buy one from your finance company or dealer to give you added peace of mind. “Warranties cover mechanical breakdown only. A car service plan pays for the service of certain items, as recommended by the manufacturer in their service schedules, whereas a car maintenance plan provides you with cover for scheduled services, plus a range of specified wear-and-tear parts and labour costs.”
“It may seem like an inconvenient expense, but adequate insurance can save you from financial disaster if you are involved in an accident or your vehicle is stolen,” concludes Vermaak.