Vehicle insurance - how is replacement value calculated?

[Paul_S]

I've battled with Outsurance to try to get them to insure my vehicle for the trade value but they refuse saying that because it's a new model (bought in 2010) they can only insure it for the retail value.

I bought the vehicle for R200K and they insured it for R215K.
The trade value of my vehicle is probably a lot less though since it's more than 6 months old and has 15000km on the clock.

From what I've read insurance companies calculate the vehicle replacement cost using the following formula:
(Retail Value of Vehicle + Trade Value of Vehicle) / 2 = Pay Out

If that is the case then what is the point of insuring for the retail value?
Surely if my car is insured for the retail value of R215K if it is stolen or written off the payout should be R215K?

 

[bierman]

thats what we want but cause your cars value even new drops daily, they wont pay you out over 6 months if something happens what you agreed upon

 

[Paul_S]

thats what we want but cause your cars value even new drops daily, they wont pay you out over 6 months if something happens what you agreed upon

So in other words I should find out what the real retail value of my vehicle is and force Outsurance to insure for that amount regardless of what they claim the retail value is.
I'm going to give their call centre some more grief.

 

[Paul_S]

My understanding is that if you're insured for "retail value" you get paid out retail, not market as the OP suggests.

Okay, that makes more sense.

WRT depreciation. Insurance companies will generally only adjust your vehicle's value with your policy renewal (i.e. annually) so for a large part of the year, yes, you are overpaying. That's why it's advisable to phone up the insurance company every couple of months and adjust your vehicles value to the latest M&M value (be it retail/market/trade) for that month.

So if the real retail value of my vehicle is now R190K and it's insured for the retail amount of R215K the insurance will only pay out R190K?
Grrrr ...

 

[kingrob]

Don't forget to give Santam a call to compare quotes!

 

[Creag]

I've battled with Outsurance to try to get them to insure my vehicle for the trade value but they refuse saying that because it's a new model (bought in 2010) they can only insure it for the retail value.

I bought the vehicle for R200K and they insured it for R215K.
The trade value of my vehicle is probably a lot less though since it's more than 6 months old and has 15000km on the clock.

From what I've read insurance companies calculate the vehicle replacement cost using the following formula:
(Retail Value of Vehicle + Trade Value of Vehicle) / 2 = Pay Out

If that is the case then what is the point of insuring for the retail value?
Surely if my car is insured for the retail value of R215K if it is stolen or written off the payout should be R215K?

Insurance is based on a principle of indemnity. Indemnity in the context of insurance basically means that the policy/ins. co. will put you back into the same position as you were before the loss or damage happened. In respect of motor insurance, the basis of settlement differs across companies, and the following bases of settlement will be:

- retail value
- reasonable retail value
- market value
- reasonable market value

Most (if not all?) insurers use TransUnion's Auto Dealers Guide (or "ADG") (used to be called Mead & McGrouther) as a starting point for valuation. As far as I know it is also widely used by motor vehicle dealerships, used car sales, etc when negotiating the trade in value or sale of a vehicle. The book states a "retail" and "trade" value for each listed make/model. The values are canvassed from dealerships all over the country and I think it is an average of trade and sale values.

The book also suggests the price of extras or accessories fitted to the vehicle that are not standard or factory fitted. Examples include mag rims, tow bar, air-conditioner, sun roof, fog lights, etc. These items should be added to the retail or trade value of the vehicle to determine the final value.

Add to this is the condition and mileage (low, average and high) of the vehicle. It goes without saying that low mileage and/or good condition will increase the value of the vehicle (and vice versa). The ADG recommends percentages by which the retail value should be adjusted.

I am not familiar with the motor policy wording from Outsurance. What I do not know is how they define "retail value". They should be able to define what there bases of settlement is. They are obliged to. If they do not or won't, my recommendation is to move along and find another that will. Plenty of decent companies out there. Or find a decent broker in your area.

However they define it, the valuation should take into consideration the age, condition, mileage and extras. Newer vehicles should also include carbon emissions tax, which most reputable insurers will include in the indemnification of the vehicle (at the very least within the 12 months since first registration).

Most motor insurers will also provide for any shortfall between the retail value (as defined above) and the outstanding value of your finances ... this is usually called the credit shortfall extension.

I hope this helps. Feel free to post any concerns or PM me if I can assist further.