I found this post by Kevin Mzanzi very useful, please retweet or share with your friends and loved ones if you find it useful.
I can guarantee that 90% of people reading this article pay too much for their motor car insurance. Just because you have received the best insurance quote when you signed the contract does not mean you pay the least. Insurance is a must to protect yourself against the unexpected, however, you should not be paying any more than you have to. Let me explain why:
Let’s say you bought a beautiful, brand-new BMW for R250,000 six years ago and you pay car insurance premiums of R400 per month. Everything is great, you pay your car off in 3 years and your car runs perfectly, until yesterday, that is.
While leaving your car door open, chasing after an wayward shopping cart at the mall, an unlicenced driver bumps into your car and rips your driver’s side door off. “It’s an Act of God!”, the driver exclaims, but this certainly does nothing to calm you down about the damage to your baby…
The assessor comes to look at your car and estimates the damages at R40,000 to repair. She decides to write off your car and gives you the value of the car, R50,000 as a settlement. (Insurance companies generally write-off a vehicle when the cost of repair is above 70% of the value of the car).
You are a little bothered that you don’t have your BMW anymore, but: that’s what insurance is for, right?
“Yay! I get a new car!”, you say. You trot off to the nearest car dealership to look at some stylish cars. You proudly show the Salesman your generous insurance payout cheque. He looks at the cheque, scratches his head and then points you to the Used 1998 Corrolla in the back….
Certainly does not compare to your BMW, right?
What happened here?
Every year, your car loses value through normal depreciation. (It is often said that the moment you drive your new car off the lot, you lose 30% of it’s value right away.) Depending on the terms and conditions in the insurance contract, the insurance company will pay you either the Market value, Retail value or Trade value. The Retail value is what you would pay to buy an identical vehicle, the Trade value is the amount you would get if you traded the car in to buy another car (before the accident) and the Market Value is the average between the Retail- and Trade Value. Most insurers pay on the Market Value.
The Market Value paid out will not get you the same quality car as you had before.
The value of your car dropped through normal depreciation, but you have been paying insurance premiums, calculated on the R250,000 value for the last 6 years. This means that you have been paying the premiums on a new car for 6 years, but when there is an accident, you only get the value of the used car.