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Is your car under-insured?

Jun 21, 2022

Used car prices have been increasing due to shortages, with the result that your vehicle could well be under-insured, according to getWorth CTO Mark Ridgway.

Is your car under-insured?If your car is insured and you suffer a total loss, where the car is stolen or written off, the insurance company will need to decide on a Rand amount to pay out. The exact approach varies between insurers, but the most common approach is to use the book value of your car.

Book values are based on long-term trends. However, the used car market has been severely affected by the Covid supply-chain disruptions and microchip shortages. Used car prices have recently been increasing rather than falling, and there are many cases where the current market values are out of sync with the long-term book values.

GetWorth’s data analysis team looked at thousands of used car prices in order to make an in-depth comparison of actual used car market prices against book values, and the results were alarming.

The effect is not evenly spread. For example, if you own a Ford EcoSport with average mileage, the book value will be reasonably in line with the current market value.

However, if you own a Toyota Land Cruiser 200 and your insurance is based on book value, you are probably deeply under-insured – by 15% to 30%.

Your low-mileage car could be under-insured

The other big discrepancy is the mileage effect. Because most insurers do not know the mileage of a person’s car, they use the average book value. This is a value based on an average mileage for a used car of a certain age. For example, a six-year-old car would be assumed to have around 100 000km on the clock.

However, lower-mileage cars have a higher market value. A 2016 BMW X5 xDrive30d M Sport with 100 000km would retail around R600 000. The same car with only 50 000km would retail at or above R700 000. Mileage makes a massive difference to price, especially on newer cars or luxury models.

However, it is critical to understand that these differences will only affect incidents where there is a total loss. For a fender-bender or damaged windscreen, the insurer will pay for the repairs – the market value of the car doesn’t come into play.

It’s a confusing situation, so you should check with your insurance company or broker what the insured value of your car is for a total loss. Then do some research to check whether your specific car may be under-insured, or if its insured value is reasonably in line with current market prices.

If it is out of line, ask your insurer if they can adjust the insured value. GetWorth is in the process of developing a pricing tool to assist car owners to quickly estimate market prices.

This post was based on a press release issued on behalf of getWorth.

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Maya Fisher-French author of Money Questions Answered

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