Too view insured vehicle owners keep a close eye on their vehicle insurance. Every month the debit order amount reduces our bank balance – and we tend to see this car insurance premium as a “necessary evil”.
We often do not even open our correspondence from the car insurance company – and only comment with disgust when receiving an alert of escalating costs.
On the car insurance blog we have given advice on how to find cheaper and affordable car insurance – and recognize that there are indeed many ways to save on car insurance premiums at the time of purchasing car insurance.
Can we save on car insurance premiums once we are already insured?
A very important aspect to consider is the yearly depreciation of the insured vehicle. Your vehicle is insured at market value of the vehicle and this value depreciates or reduces as time goes by and the vehicle gains more and more mileage…
It is important to recognize that if your vehicle is damaged, stolen or written –off/ totalled, the car insurer will consider the market value of that vehicle at the time of such damage and loss – and not the value at the time when you first insured the vehicle.
What is the market value of your vehicle?
Market value is also often referred to as “fair” value. It can be described as the price an item can be sold or bought for between an agreeable (willing) and knowledgeable buyer and seller in an open market transaction. It is the current value of an item, if it were to be replaced by an identical item, being of similar age and wear and tear. This value is calculated at a specific time – the time the loss took place.
A better understanding is possible if we take a closer look at 3 different values:
* Retail Value: Refers to the price a car dealer might be able to sell the car for.
* Trade Value: Refers to the price a dealer might pay you should he buy the car from you.
* Market Value: Is halfway between the Retail and Trade Values.
Why is this market value and depreciation important for my car insurance premium?
Most insurers will only insure your vehicle at the current market value. You need to ask whether your car insurance premium keeps track of the depreciating market value. If you insured the vehicle at the time of purchase for the purchase price of R200,000 but now, 5 years and 150,000 km later the vehicle is only worth R80,000 – there is no sense in still paying the insurance premium that was required to cover an asset of R200,000. Your insurance premium should provide cover for an asset to the current market value of R80,000!!
Not all contributing factors to the car insurance premium depreciate!
Even though the depreciating market value should also reduce your car insurance premium – it is important to note that the reduction might not be as significant as you might expect. There are other factors that will, as time goes on also add upward pressure on the premium.
These include:
* Normal inflationary pressure can increase car insurance premiums by anything between 5% -15% yearly
* Increased perceived risks as a result of vehicle damage [accidents , potholes] or vehicle loss [accidents, crime]
* Even though your vehicle might reduce in market value – the costs of repairing such a vehicle after an accident might still increase.
* Vehicle parts needed for repairs might continue to become more expensive despite the market value of your car decreasing.
This is perhaps an explanation of why there is not an automatic reduction in the car insurance premium in line with the depreciation of your vehicle – and also why it might be a good idea to tie down the insurance premium for 2 or 3 years.
Advice to vehicle owners
Car Insurance should not be seen as a once-off but rather as something that requires more regular attention. We would like to advise that vehicle owners pay closer attention to the correspondence from their insurers or brokers.
Communicate more regularly with your insurer, and keep your ear to the ground for “newer generation products” etc. Do a yearly quote request and compare your existing insurance with products available that could provide the exact same cover at more favourable rates.
The car insurance industry is highly competitive – and this should benefit vehicle owners. Do not let laziness or apathy make you pay much more than you need to!!