Image: iStock
Understanding exactly what car insurance terms really mean is one of the most important issues to brush up on when you insure your car.
Few consumers know what agreed value or credit shortfall means, but consumers are often too shy to ask and rather pretend that they know.
This is probably one of the reasons why the Ombudsman for Short-term Insurance says the office gets the most complaints about car insurance.
If you do not know what you sign for, it is unfortunately not an excuse when you want to question why you claim is not paid out or you only get a small amount.
It could all be very different if everyone spoke to their insurer about the different car insurance terms and policies, says Wynand van Vuuren, client experience partner at King Price Insurance.
“People do not know what certain terms mean, or they take advice from friends instead of establishing the facts. Social media is also a mine of misinformation from well-meaning but misguided commentators.”
ALSO READ: Ensure your car insurance claims are paid with these tips
He gives the following tips for consumers to clear up some common misconceptions around car insurance:
Most insurers who offer comprehensive cover will insure your car at its retail value.
Retail value is what it would cost to replace your current car.
“In other words, this is what it would cost to buy your car from a dealer right now, considering its age, condition and mileage. The retail value is typically higher than the market value, which is what you would be able to sell your car for right now.”
Van Vuuren says it is important to know that car’s lose value from day one for various reasons.
“The retail and market values of your car both decrease over time. If your car is written off or stolen and it is insured for its retail value, your insurer will only pay out what the car is worth at the time of the loss and not what you paid for the car.”
Some insurers will now insure your car for an agreed value and this means you can choose a more realistic replacement value for your car.
King Price, for example, offers consumers an agreed value of up to 20% more than today’s retail value.
It is fixed for three years and does not depreciate which means if your car is written off or stolen during this time, you know exactly how much your pay-out will be.
ALSO READ: Top tips to insure your used car
Van Vuuren says consumers are also confused by the term credit shortfall. “In simple terms, credit shortfall covers the difference between your car’s insured value and the amount you still owe the bank.”
He says if a credit provider financed your car, the insurance pay-out at the time of the car being stolen or written-off can be less than the outstanding finance amount. “If you add credit shortfall cover to your policy, your insurer will also pay the amount that you still owe the bank after settling your claim.”
Many consumers think that credit shortfall covers the gap between your car’s insured (retail) value and the price of a new car, but it clearly does not.
When deciding on the best car insurance for you, you must understand what you sign up for, he says and warns consumers not to simply accept what someone says on Facebook. “Rather ask your insurer to explain all the terms in your policy. It may just save you a nasty surprise if anything happens to your car.”
Download our app and read this and other great stories on the move. Available for Android and iOS.
