Buying a new car is an exciting experience that demands financial responsibility. Before you head off to your local dealership, it is important to realise that the car’s price and monthly instalment are just part of a bigger ‘money’ picture, as is car insurance.
“Understanding the insurance implications when buying a new car will help you make an informed decision and ensure you have the right cover to protect your investment in the event of accident or theft,” says Lizo Mnguni, spokesperson for Old Mutual Insure.
He adds that one of the reasons the insurer became the headline sponsor of the prestigious 2023 South African Car of the Year (COTY) competition, is to help consumers make insight-driven insurance and car buying decisions.
Below are Mnguni’s top insurance insights when investing in a car.
1. Get to know your insurance policy
At the outset, you need to know how much your monthly car insurance will cost and what the policy will cover you for. Comprehensive car insurance is the best bet for a new car, because it covers your car for accident and theft as well as your liability for accident damage to other vehicles where you are considered at fault. There are ‘cheaper’ car insurance policies such as third party only, which pays out for accident damage caused by your car to other cars in the event you are considered at fault or third party, fire and theft cover, which additionally covers your vehicle against loss or damage due to fire or theft.
2. Should you go for the optional extras?
Aside from the insurance type, you may be asked to choose an excess on your insurance or whether or not you want optional extras such as credit shortfall insurance or a rental car in the event your car is damaged or stolen. An excess is an extra amount you pay when you claim against your car insurance with a general rule that a higher excess will slightly reduce your insurance premium. You should, however, avoid agreeing to too high an excess because you may struggle to find the cash at claims stage. Credit shortfall insurance covers the difference between the amount your comprehensive insurance will pay out following the total loss of your vehicle versus what you owe the bank.
3. What about value-added products?
You also need to know about value-added products that the financial dealership might offer you such as rim and tyre insurance, mechanical breakdown cover or extended warranties. These options are separate to your car insurance and will also come at a monthly cost.
“You may wish to talk to an insurance broker to assist you in taking out the correct type and mix of insurance cover,” Mnguni says, before stressing that your car insurance policy does not pay for maintenance and running costs or expenses due to mechanical breakdown.
4. Keep your car in showroom condition
Even so, your insurer expects you to keep your vehicle in excellent running condition. You should stick to the maintenance and service schedule recommended by the car manufacturer and also ensure that your tyres have enough tread and that your car’s shocks and brakes are in good condition at all times. This is important for your safety and that of your passengers and other road users, and it makes financial sense too. “If your tyres are bald and you get into an accident, there is a good chance of your claim being denied by the insurer,” Mnguni says.
He adds that to help policyholders in today’s tough economic environment, Old Mutual Insure has launched its new Value4U Motor value added products (VAPS. The Value4U Motor VAPS offers a wide range of cover options, plans, and limits for customers to choose from, depending on their car’s current life stage, individual circumstances, financial needs, and budget. An added bonus for policyholders is that there is no excess payable on claims on these products. The Value4U Motor VAPS includes Extended Warranty, Scratch & Dent, and Tyre & Rim cover for the personal lines market.
There are a number of other considerations when taking out car insurance. For example, your insurer may insist on high value cars having a tracking device installed to assist in recovery following a hi-jacking or theft. They may also ask you to take extra steps to protect your car from sophisticated criminal syndicates that use signal jammers and other technology to steal cars.
“The point of insurance is to put you back in the same position you were before a loss. Making sure that you have insurance to pay out should anything unfortunate happen is incredibly important in today’s high cost of living environment,” Mnguni concludes.