How to value your car correctly

2012-07-21 09:47

You may be paying more than you should on your car insurance if you have not updated your vehicle’s value, writes Liziwe Ndalana

It is important to review your vehicle insurance every year to ensure you have valued your car according to its replacement value.

Insuring based on the correct replacement cost of your car not only saves you on premium payments but is also important in the event of a write-off, hijacking or theft.

According to Gari Dombo, the managing director at Alexander Forbes Insurance, many insurers automatically re-evaluate vehicle values downwards each year.

These insurers use data published in the Mead & McGrouther Dealers’ Digest.

If, however, the vehicle does not appear in the digest, insurers will not know what the vehicle is worth.

According to Dombo, vehicle owners will then need to advise their insurer of what amount their vehicles’ value should be reduced by.

“In this instance, one can ask two or three vehicle agents to advise what they would sell the vehicle for in its current condition and then approach the insurer to insure on the average of those values,” says Dombo.

In the event of your vehicle being written off or stolen, the amount payable will be subject to the market value of the vehicle at the time of loss or its sum insured, whichever is less.

So it is not worth insuring for more than the car’s market value, but you also do not want to underinsure.

“For accident write-offs, Alexander Forbes’ policies state a vehicle will be written off when the cost to repair the damage exceeds 70% of the retail value or 70% of the sum insured, if that is less.

“So, if the sum insured on the vehicle policy is less than its retail value, the insured stands a higher chance of having the vehicle written off, with the settlement amount being less than what the vehicle can be replaced for,” says Dombo.

Since, however, the write-off percentage is not always stated in the policy, some insurers will write off a vehicle at a lower percentage, sometimes even as low as 65% of the value.

“This means the vehicle will qualify to be written off in an even less damaged condition. Since this means the difference between driving a brand-new or a repaired vehicle, consumers should ask for written confirmation of the percentage at which the insurer will write off the vehicle,” says Dombo, who adds that it is important to also find out whether the insurer derives the value on the trade price or the retail price.

It is important to know that the price of your insurance premium is determined in part by the value of your vehicle, but does not increase or decrease directly in proportion to a change in the vehicle’s value.

The average cost to repair a vehicle is influenced by inflation.

The cost of parts and labour tends to move up over time. Fully or partially imported parts are also sensitive to the strength or weakness of the rand.

“The premium is not likely to go down when the vehicle value reduces because the average expected cost to repair goes up every year. The cost of repairing a vehicle now worth R50 000 is most likely going to be more than repairing the same vehicle last year, when it was worth R60 000.

“This is due to parts, labour and assessors’ pricing going up. There is also a factor of scarcity for vehicle parts as the vehicle gets older. This also increases price,” says Dombo.

For you to know that your vehicle has been undervalued or not, you need to monitor vehicle dealers’ advertised sales prices of vehicles the same or similar to yours.

If your vehicle value looks out of line, check with an agent, then contact your insurer to discuss a change of sum insured.

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