What you need to know about car insurance

Although it’s not compulsory to insure a vehicle in South Africa, because of their replacement value as well as the potential for being held personally liable for accident damage and medical costs, most drivers have some kind of insurance on their car.

A portion of the annual licence disk renewal fee paid to local government each year goes to the Road Accident Fund, so in the event of someone’s injury or death, a fellow road user is paid out of what is known as third party insurance on this basis. Importantly, this doesn’t preclude someone suing you for damages, nor does this insurance extend to your damages or loss, merely other pedestrians and fellow drivers. “Third Party” insurance is a given with a roadworthy car, displaying a current licence disk on the windshield.

Insuring a car has changed a lot over the last decade in South Africa. There are various terms you’ll encounter when insuring that, once understood, will make choosing insurance a pleasant experience that gives appropriate insurance cover for your car. Calling individual advertisers, utilising a broker or employing an online portal are all routes to collecting and comparing car insurance quotes.

Insurance Terms Explained

  • Premiums - The most important word in car insurance, a “premium” is the amount you’ll pay each month for your insurance. If circumstances allow for it, an annual premium might be preferable for you, but whether monthly or yearly, a premium is the cost of your car insurance.
    • Premiums explained - Besides driver age and experience, an insurance company will also consider the cost of the car, it’s engine capacity and safety features in determining a monthly or yearly premium. Your insurance history is also considered, including whether you have ever claimed in the event of an accident at any insurer in South Africa
  • Excess - a close contender for most important consideration, is simply an amount you will have to contribute to any insurance payout in the event of you claiming through your insurance policy. Also sometimes called a “deductible”, an excess is the amount you still carry as a liability in the event of an accident, as insurance typically requires an owner to contribute to costs in the event of a claim. Some insurers will factor in the excess into monthly premiums and, if this is still affordable, can eliminate the need to find cash in the event of a claim.
  • Gap cover - is one answer to this. Not only can “gap insurance cover” void the need to pay excess, it also enables a total, comprehensive repair as you’d like it. Car insurance comes as a variable yet ultimately basic offer. It’s important to understand basic insurance and imagine a few scenarios where you might need additional repairs or cost-cover not addressed by your basic insurance policy. This is where gap cover comes in. Although it adds to the monthly cost of insuring your car, it does provide complete peace of mind, knowing that you are covered for any eventuality, even settling the loan account fully in the event of a car being written off.
  • Profile - your profile is what an insurer will utilise to cost the risks of insuring you. Younger drivers without an insurance history are typically quoted higher premiums, whereas older, experienced drivers without a negative accident record will usually enjoy lesser premiums on insurance. Although you can’t account for others’ driving habits and accidents happen, being a conscientious and careful driver can help maintain a good risk profile and lead to insurance savings over time.
  • Fire & theft - refers to basic insurance, where an insurer will pay out a sum based on the value of your car in the event of it being burned beyond use or stolen. Fire & theft cover is typically the first building block of an insurance policy.
  • Accident or Collision cover - forms the first comprehensive tier of cover. There are limits to what an insurer will pay for accident repairs - detailed in the fine print - and an insurer typically retains the option to scrap your car and replace it in the event of extensive damage.
  • Comprehensive cover - this is fire & theft, collision (accident) as well as other insurance all contained within one policy. It is essentially what it claims to be - cover for any unforeseen misfortune - but, be warned, it still has a cap and doesn’t replace gap cover for complete piece of mind. Comprehensive cover will typically cover fire, theft, accidents, hail, flood and vandal damage.

It’s now possible to investigate various new insurance offers in South Africa, offered by the insurance fraternity to enable more flexible insurance options for consumers. Some insurers offer a basic savings facility, where whatever you’ve paid into the policy becomes available for repairs when needed. There are vehicle warranties that act as riders or additional cover to address wear and tear on a car, but these are not considered part of the typical insurance policy a driver can obtain. There are offers that see your insurance premiums decline each year, based on the car’s depreciation. And there are policies that offer cash back after a period of no claiming, no-claim bonuses and a variety of other incentives that encourage good driving and minimal misfortune.

The nutshell
Don’t get lost in jargon. When looking at insurance policies on offer, figure the basic structure and look at all of the details to arrive at a complete view of whether what’s on offer meets your needs. This is where a brokerage can be very helpful. Although any given brokerage might have preferred products, in conversation with a consultant ask about alternatives and investigate all relevant offers thoroughly. If the available choices seem limited, move along and shop elsewhere until you feel you have an overview of all possibilities.

Other terms you might encounter when shopping for insurance:

  • Book value - Also known as "trade value" refers to the price a car dealership would pay when you trade your car in or sell it them.
  • Assessor - The nominee who looks into and settles insurance claims on behalf of an insurer.
  • Market Value - Different to book value, market value is what you can reasonably expect to be pay for your car on the open market.
  • Agent/Broker - A person that sells insurance.
  • Benchmark - Also called benchmark rates, these are industry norms within which most insurers will operate when quoting you on cover. Derived of government oversight, industry statistics as well as input from the Insurance Ombud, the industry benchmark is updated annually.
  • Claimant - You, if ever you claim for losses from your insurer.
  • Contract - The policy paperwork that details your insurance and the basis of how your insurer will compensate you if ever you claim.
  • Depreciation - The gradual diminishing of value of a car over time, based on wear & tear and overall aging.
  • Endorsement - An endorsement is typically a proviso, such as you not being covered when crossing borders, the car not being insured if you’re not the driver or other stipulations. Endorsements can also increase benefits when added and not only limit them.
  • Lapse - What insurers will call your insurance policy - lapsed - in the event of you missing premium payments. It’s very unusual for an insurer to entertain a claim when a policy is lapsed, so be warned.
  • Liability - This is a term worth mentioning before signing paperwork, as it typically refers to exclusions that might not be immediately clear. Limited drivers, usage conditions and so on can be addressed under the term “liability” and it’s wise to see what an insurance policy has to say on the issue.
  • Limit of liability - Further to the point above, most important is to note whether any liability stipulations include capping payouts under certain circumstances. You might or might not feel the limits are fair, but you need to understand their extent in order to evaluate any given policy.
  • Rental cover - This refers to your insurer offering you the option of a rental car that they pay for, in the event of your car being out of action.
  • Surcharge - A surcharge may be levied, even on existing policies, if during the term of the cover you have frequent at-fault accidents or display otherwise negligent behaviour when driving.
  • Underwriter - The insurer who holds authority and liability on the policy and who will pay you out in the event of a claim.

There are extra frills, like towing cost cover, unanticipated labour costs, as well as personal preferences being met by various policies in one form or another. Car insurance is a bottom-up build. Make sure you have the basics covered and then add on services or extras as you desire and can afford. Most importantly, look at the overall cost and excess of a policy over a year. Extrapolate the annual costs against the excess and other excluded areas of cover so that you can see figures in totality to get a clear picture before signing up. And, remember, never under-insure. While it might save on a monthly basis, if ever you need to claim, your insurance will be pretty worthless, as the insurer is legally entitled to readjust everything on the basis of your previous willful under-insurance.