It is important to review your vehicle insurance every year to insure that you have valued your car according to its replacement value. Insuring based on the replacement cost of your car not only saves you premiums but it is also important in the event of a write-off, hi jacking and theft claims.

According to Gari Dombo, MD: Alexander Forbes Insurance many insurers automatically re-evaluate vehicles downwards each year. These insurers use data published in the Mead and McGrouther Dealers’ Digest. If however, the vehicle does not appear in the Digest, insurers will not know what the vehicle is worth. Dombo says vehicle owners will 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 present condition and then approach the insurer to insure on the average of those values,” advises Dombo.

In the event of your vehicle being written-off as a result of an accident 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 its market value but you also do not want to underinsure.

“For accident write offs, Alexander Forbes policies state that a vehicle will be written off when the cost to repair 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,” Dombo says.

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 that 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 basis the value on the trade price or the retail price as the trade price tends to be lower.

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 value of the vehicle. The average cost to repair a vehicle is influenced by inflation. Cost of parts and labour tend to move up over time. Parts are also sensitive to the strength or weakness of our currency as most are imported or are partially imported.

“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 and then 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”, Dombo says.

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. You also need to contact your insurer to discuss a change of sum insured that you require.

This article first appeared in City Press