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Car insurance is essential. But insuring it for the right value is important, too.
If you get into an accident and your car is written off as a result, or your vehicle is nicked by thieves, you want to be sure that you'll be able to replace your ride with one that's at least similar without being out of pocket.
When you’ve got third-party only car insurance, the value of your car doesn’t factor into it because your car isn’t being insured. However, with comprehensive and third-party, fire and theft car insurance, the value of your vehicle will affect your monthly debit order.
On comprehensive plans, the fact is that the more valuable your car is, the more it will likely cost to replace if it goes bye-bye. Essentially, the insurance company is accepting higher potential liability and they’ll charge you extra for this.
There are different value options that you can choose when insuring your car comprehensively. Each of these will have an effect on your premiums and how much you’ll be paid out if you need to replace your vehicle.
What it would cost to replace your car with a new one from a dealership.
What you'd get for your car if you sold it second-hand.
What a car dealership would pay to buy your vehicle (also known as book value).
A payout to get the same model car, but one year newer with fewer kilometres on the clock. Note that not all insurers offer this type of cover.
Retail value is the average price you would pay for your vehicle if you bought it from a car dealer. Typically, if your car is stolen or written off, you’d be paid out a settlement amount based on the retail value.
This is usually the highest value that you can insure your car for and is often reserved for brand new sets of wheels. It includes the profit a dealer would make from the sale of your car—because you’d have to pay that if you were replacing your ride.
Market value, on the other hand, is what you’d get for your car if you went to sell it in the open market (somewhere like Gumtree or Facebook Marketplace, for example). The market value of a car will always be lower than the retail value and is determined by a variety of different factors. (More on those later!)
Also known as the actual cash value or trade-in value of your vehicle, book value is the estimated worth of your car in the current market. In practice, trade-in value is how much a car dealer would pay for your vehicle if you went to sell it.
This value is always lower than the market value, which means that you’ll pay lower premiums, but you’ll also be covered for less.
Insurers need to work out how much they’d pay out when your car is insured for the retail, market, or trade-in value—or if you come to an agreed value with your insurer.
So, how exactly does an insurance company work out how much your car is worth?
Well, it’s not just a wild guess. There are various factors that insurers look at to decide how much your car is worth and what your monthly premiums will be. Let’s break it down for you in this handy infographic.
One of the biggest factors in determining what your car is worth is what make and model it is. When it was produced also plays a role in affecting the value.
Newer cars generally have a higher value because they haven’t been on the road and subject to as much wear and tear as their older counterparts. The make and model matter because some brands and types of cars hold their value better than others.
Moreover, as your car ages, it depreciates. In other words, it loses value over time. Depreciation is a standard factor in valuing assets. Imagine you own a three-year-old Toyota Corolla and your friend has a three-year-old BMW 1 series, both in the same condition. Even though both cars are the same age, the BMW will likely have a higher insurance value because of its higher sales price.
The number of kilometres on your odometer is another significant factor when it comes to car insurance cover.
Cars with lower mileage tend to be valued higher because they don’t experience as much wear and tear as those that are driven a lot. Fewer kilometres travelled means less stress on the engine and other components.
Let’s say you’re looking at buying one of two used cars. The first one has 30,000 kilometres on the clock. The second has 80,000 km. The vehicle with lower mileage will likely have a higher insurable value because, having been on the road less, it’s perceived to be more reliable.
Wear and tear, like scratches, dents, or bodywork issues caused by previous accidents will affect the value of your car. Your vehicle’s service history can also impact the insurable value.
Think about this: you have two identical cars. One has been meticulously maintained, it’s free from any dings and scratches, and it has a full service history. The other is covered in scrapes and dents, and the interior is worn out, with a few major services skipped.
The well-maintained car will have a higher insurance value, not only because its looks mean that it could be sold at a higher price, but because it's been taken care of and serviced regularly.
This is a big one. If your car has been in an accident, especially a significant one, its value will likely be reduced. That’s because accidents can affect the structural integrity of a vehicle, making it less valuable.
Insurance companies keep an eye on market trends. If cars similar to yours are selling for higher prices, it might positively affect your car’s insurance value.
Say you buy a hybrid vehicle. Fuel prices go through the roof and suddenly electric cars become more in demand (this is a fantasy world where load-shedding doesn't exist, okay!), increasing their market value. Your insurer could adjust your car’s value to reflect the increased cost that you’d incur to replace your car if it was stolen or damaged.
That said, insurers often don’t make this adjustment on their own. You usually have to contact your insurance company to alter your policy.
Customising your car might make it stand out from the traffic, but some modifications can affect your vehicle’s value. Certain enhancements can increase the value, while others can make it drop.
Let’s say you and a friend each buy the same make and model of car. You add a tracking system and towbar to yours, while they add a racing kit to theirs.
It’s likely that your towbar and tracker will increase the value of your vehicle because these are in-demand features. The racing kit might not necessarily decrease the value of your friend’s car, but it’s unlikely to push it up.
Deciding what value to insure your car for will depend on a variety of factors. Two of the most important are how much you can afford to spend on monthly premiums and how much you’re willing to pay out of pocket if you need to replace it.
Let’s look at a real-life scenario to better understand how different valuations can impact your insurance coverage.
Hannah and her siblings Henry, Hazel, and Hugo all need cars. They know that they can get a better deal on their vehicles if they buy in bulk and they find a dealership that’s willing to give them a discount if they all buy cars at the same time.
Being the cautious older sister, Hannah decides to insure her new set of wheels for its retail value. Henry opts to insure his car for the market value, while Hazel goes for the trade-in value.
Over the course of a couple of months, each of the siblings’ cars are either stolen or involved in major accidents that involve them being written off. Talk about a run of bad luck!
Having insured her car at its retail value, Hannah can replace it with a new vehicle of the same make and model. Although her monthly premiums had been a bit higher than her siblings’, she’s glad that she forked out the extra.
Henry isn’t much worse off. Although his market-value insurance had his car valued at slightly less than the full retail value, he’s able to buy a comparable used car (maybe with a few more kilometres on the clock) without having to pay anything in.
Hazel insured her car for its trade-in value.
This meant that Hazel’s insurance payout didn’t cover the cost of a similar vehicle. She has to dip into her savings to cover the difference between the cost of her next vehicle and what her insurer paid her.
Valuing your car correctly is super important for ensuring that you’re able to replace your vehicle in the event that it’s written off or stolen.
Retail and market value usually give you more comprehensive coverage, while trade-in value might leave you financially strained if you have to replace your car. Agreed value offers a bespoke solution for your specific needs.
Now that you know all about the different car insurable values, let Hippo.co.za help you find the best car insurance quote for your needs.