New vs used car insurance

You know you're officially an adult when you've received a telesales call from a motor and home insurance company. While these may be infuriating as best, insurance is an important part of vehicle ownership and should always be factored into the purchase and ownership costs of a vehicle.

Related: What are the best car insurance companies?

The purpose of insurance is to help you maintain your financial situation in the event of an accident or complete loss of your vehicle. Correctly covered, you should be either able to repair the vehicle to its prior condition before the accident or replace it with a vehicle of similar current value. There is always a small portion of the coverage that is self-financed, this is known as the excess - it's an amount that you're responsible to pay to make up for the difference in payout and value. You can read more about excess payments here.

 

Different types of coverage

Not all insurance is the same and some coverage will only cover other vehicles or certain incidents. Therefore it is important to know what sort of coverage you need for your vehicle.

 

Fully comprehensive

Fully comprehensive insurance will cover your vehicle for its replacement value. It will cover the costs of repairs and in the event that your car is damaged to the point where it is uneconomical to repair (written off), the insurance will pay you out the full amount that the vehicle was covered for. This is usually the replacement value and is based on your vehicle's market value. Fully comprehensive also covers the damages to the other vehicle if it is found that you were at fault in the accident. Fully comprehensive insurance covers theft and fire risk as well.

 

Third-Party cover

Third-party cover is a cheaper form of insurance but it only covers the damage to the other vehicle or property when you're involved in an accident. This does not cover your vehicle or the cost to repair or replace it. You will be left in a worse-off financial situation if you only have third-party cover, but it does prevent you from being sued by the other driver/insurance company for the costs to repair the other vehicle involved in the accident. Third-party insurance will usually be bundled with Fire and Theft coverage as well.

 

Fire and theft

Fire and theft cover only covers your car for these events. If your car is stolen or catches alight, the insurance coverage will pay you out the replacement value of your vehicle provided that the incident is accidental. This doesn't cover you for accident damage and doesn't cover the other vehicles involved in the accident.

Related: 10 Insurance myths busted.

 

New vs used car insurance

There's no discernable difference between the insurance coverage for new or used cars. The insurance policy will cover the vehicle for its agreed-upon value, usually market/replacement value unless a separate appraisal is submitted that states otherwise. While new cars generally cost more to insure as their value is higher, it's entirely possible for used vehicle insurance cover to cost more; you could buy an R500 000 used car that cost more to insure than a R300 000 new car.

 

If you purchase a vehicle on a finance agreement with a bank or financial institution, you are contractually bound to ensure that the vehicle is comprehensively insured until such time as the vehicle is paid off and transferred into your name. This is to safeguard the financial institution's invested interest in the vehicle. Insurance companies will be able to offer you shortfall insurance that ensures that you will not owe the bank any money in the event of a complete loss. This applies to both new and used vehicles that are financed.

Used vehicles are not required to have fully comprehensive insurance coverage (although it is always in your best interest to do so). You will be able to take third-party, fire, and theft coverage only on a vehicle you own outright, but you cannot do this with a financed vehicle.