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Source: Fair Go -
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Reporter: Hannah Wallis
Each year, 1 in 6 Kiwis will make a claim on their car
insurance, claims totalling $300 million annually. Compelling
reasons to have car insurance, but do you have the right
kind?
There are two types of insurance cover - market value and agreed
value.
Market value insurance This is a sum based on what your car, in a pre-crash conditions, would fetch on the open market. But - this is maximum amount - if your car is written off or stolen, you may actually end up getting paid out much less than that sum.
Insurance lawyer Andrew Hooker says he regularly has clients who have a car on the books that is insured for $5000 or $10,000 and they might only get a couple of thousand dollars for it. So, if you've got a car with a sum insured for $5000, but your car because its old, or has high mileage, or has some damage on it, is only worth $1000 , that is all you will get - but you've been paying a premium and levies, based on the sum insured. This is more of a problem now, than say 20 years ago, with cars depreciating so quickly.
The other kind of insurance is Agreed value insurance. This is
when you and your insurer agree on a sum that the car's worth, and
that figure's updated every year, pretty much going downwards. If
this is the policy you've chosen - you need to look pretty closely
at that agreed sum or you could really be out of pocket. We've got
the example of a Mitsi Sportsgear, originally insured with an
agreed value in 2003 of $12,000 that dropped by 2006 to $8000, 2008
- $6800, and in 2010 $4800. All based on the devaluation of the
average car - but if your car's not average? Like a vintage car, a
special sports car, or a car that's in especially good condition,
with low mileage, or a car that you bought at a bargain but is
actually worth a lot more. Andrew Hooker says those cars
might all be a problem because the insurance company might be
reluctant to insure them for what they're really worth. He says if
there are unique reasons why your car is worth more, a good idea is
to photograph it or even get a valuation yourself, and tell the
insurance company.
Four members of the Fair Go team had their car policies checked out
by an insurance broker, Phil Snookes from IBANZ (Insurance Brokers
Association of New Zealand). Phil found only one had about the
right amount of insurance cover, the three could all get
their insurance premiums reduced by between $2-400 a
year.
The Juice:
The pros and cons are: with market value you might pay a lower
premium, but there's a chance of a much lower payout and if you go
the agree value way, your premium will most likely be more but
you've got a lot more certainty about the payout.
Watch the value of your car doesn't fall below two and a half to two thousand dollars. If it does there's not much sense paying full insurance premiums, get 3rd party for a couple of hundred bucks instead.
If you write your car off while you still owe money on it the depreciated value might mean you're left with an insurance pay out that doesn't cover the full cost of your finance, be wary of that.
And if you're considering using a broker - the insurance company pays them, not you and they can investigate some options that may not be available to ordinary punters.
