10 Insurance myths busted.

By Chad Luckhoff

We look at 10 common myths and with the help of professionals, bring you the facts regarding the many misconceptions.

No one likes paying for insurance. You spend a considerable amount of money every month and have very little to show for it – until the unthinkable happens.

As much as insurance is a grudge purchase, it's one worth investing in. It's a safety net that can make the world of difference when things go wrong.

We hear all kinds of reasons why someone doesn't have insurance and this had us approach an insurance company to see if these reasons hold water, or if they're just myths. We also look at some of the common misconceptions and rumours to see if they are accurate or not.

It's worth noting that insurance is mandatory on a vehicle that is financed through any financial institution.

In no particular order:

1. Insurance premiums cost too much, there's no way of negotiating the terms.

False. Most insurance companies will allow you to negotiate a premium with them. If you give them your budget and have reasonable requests, many of them will be able to tailor coverage that suits your pocket. The key term is reasonable here; you're not going to comprehensively insure a new BMW M3 for R5/month.

If you have more than one vehicle and one of them is driven infrequently, you can negotiate a lower premium and possibly even discuss a voluntary excess on that car.


2. The colour of the car affects the premium.

True. Sometimes you will be charged more for a particular colour car as some insurance companies regard this as being a higher risk due to their low-visibility. This mostly applies to black, grey and charcoal coloured cars. White cars tend to be cheaper.

It's worth noting that this doesn't apply to all insurance companies and some will give you the same rate, no matter what colour your car is.


3. A bad credit rating results in high premiums.

While your credit rating does have some bearing on your risk profile, it doesn't affect your premiums much. Having a poor risk profile (which includes defaulting on payments) will result in a slightly higher premium but the basis for your premium is still based on the average cost to repair the chosen vehicle.


4. Your vehicle is not covered if is used during the day when insured under private insurance.

This refers to the difference between business and private use coverage of a vehicle. You will still be covered if you are involved in an accident during office hours and even if it was to go and see a client or was business-related. The one caveat here is that it is limited to 4 business trips per month. This may be somewhat tricky to prove and if you are using your vehicle for business use, it's best to discuss a cover that allows occasional business use.

5. Insurance premiums will increase every year.

For the most part, this is true. The reason for this is that inflation results in the parts for your car costing more than they did the previous year. It has to do with the economy as labour charges also increase year on year. Your premiums are calculated on how much your car will cost to repair (amongst other criteria).

It's worth noting that some insurance companies will allow you to renegotiate your premium on the basis that your vehicle is worth less each year. While your car may have depreciated, keep in mind that the premiums are based on repair costs and not overall value.

6. Spreading your insurance across companies results in cheaper premiums.

This is false. While there is no problem insuring your household contents with one company and your car with another, most insurance companies will offer s reduced rate the more you insure with them. Placing all your cars and your household contents on your name with one insurance company will work out considerably cheaper than by spreading them out. It also provides you with more foundation when it comes time to negotiate your premiums.


7. There's no need to call your insurer if you change something on your car, it only pushes your premium up.

While true in the sense that your premium will go up, you should always call to inform your insurer that you have made changes to your car.

Fitting a set of wheels, a new radio or even just a tow bar should end with a call to your insurer to let them know that the value of your car, and the cost to repair it, has changed. If you do not call and disclose this information, you could have a claim repudiated (denied) or end up with the repairs not covering the items you added. Complete transparency is always the best practice.


8. Top-up cover is a scam, they only want to get more money out of you.

False. Top-up cover is a lifesaver if your car is being financed. From the moment you sign the finance agreement, you owe the bank more than the car is worth. This situation can last for as long as three years as you first pay off the interest before getting to the capital balance. Top up cover ensures that any shortfall that may arise from this situation is covered by your insurance.

For instance; if your car is worth R200 000 and you still owe the bank R215 000, your insurance will only pay out the value of the vehicle (which is R200 000), leaving you to pay the R15 000 shortfall out of your pocket.


9. Having a car with ABS and all the other safety systems makes the premiums lower.

While a safer car may result in a slightly lower premium (but not always), the main consideration factors for your premium is the security systems installed, rather than the safety systems. Therefore having a tracker, immobiliser, gear-lock and other security systems in place will help keep your premium down. Where and how the vehicle is stored also weighs in heavily when it comes to calculating your premium.


10. Advanced driving courses will let you get a better deal.

True. Many insurers will offer a small reduction in your premiums if you have an advanced driving certificate from a recognised institution. This doesn't only apply to road driving and 4x4 courses can also help reduce your monthly premium.

Speak to your broker or insurance company for more information on the above. Don't be scared to ask questions and feel free to ask them how you can reduce your monthly premiums.

How much does car insurance increase after a car accident? Read more here

What is third party insurance? Look here