7.08.2024

What Is Car Insurance, And Why Do You Need It?

The only thing standing between your car and financial ruin is insurance. 

Pineapple’s CEO, Marnus van Heerden, said, “I think the important thing to get people to understand is what financial position you are going to be in if something happens to your car.”

However, over 65% of South African motorists have taken the risk of driving without that financial safety net. 

Why?

Marnus answered, “Financial education is a big component. What happens if your car gets stolen or written off? You are still paying a debt, but you actually don’t have a vehicle. “

Therefore, car insurance is one of the best investments a motorist can make towards financial security.

Why You Need Car Insurance Coverage

To echo Pineapple’s CEO, insurance protects you during a total write-off; without insurance, you may be stuck paying for a car you no longer use.

So, does that mean older cars don’t benefit from motor coverage? 

“For older cars, insurance is still valuable as it helps you avoid a big financial shock,” Marnus shared, “It’s a nice tool as part of your overall financial planning and can protect you from having a lot of volatility in your financial progression.”

Types of Coverage and How Car Insurance Works

Insurers typically offer the following car insurance policies:

  1. Third-party liability cover
  2. Third-party Fire and Theft cover
  3. Comprehensive cover

Third-party and third-party fire and theft cover the cost of repairs for another driver’s vehicle and/or property should you, the policyholder, cause an accident. 

The latter also covers damages caused by a fire or if the vehicle is stolen. 

Comprehensive cover is a more extensive insurance policy offering broader protection. It typically includes the aforementioned cover plus optional add-ons (hail damage, car hire. etc.) depending on the insurer.

Vehicle insurance is offered as a policy; you purchase for a monthly fee called a premium. 

When you need to claim from your insurance provider, you first pay the excess, which is the fixed amount you pay towards a claim before your insurance coverage kicks in. 

Why Are So Many South African Drivers Uninsured?

A FinMark Trust study found that 85.3% of the average South African’s income is spent on living expenses. Whatever is left over has to be split between bills, savings and leisure; car insurance rarely makes the cut. 

What motorists don’t realise is that a monthly premium is a small price compared to the exorbitant repair fees of a damaged vehicle or the cost of replacing the car entirely.

Plus, having a good insurance track record can directly benefit you by putting money back in your pocket through lower premiums.

On this, Marnus shared, “Building a good track record (by having a good insurance history with limited claims) means your insurance premium will decrease because the actuarial models will decrease their assessment of your risk over time.”

Actuarial models are complex calculations used by insurance actuaries to assess risk and set insurance premiums. 

Conclusion

Ultimately, insurance is a personal decision, but who would say no to the peace of mind financial security brings? 

Having the right car insurance policy means having someone there the next time you suffer a bumper bash or breakdown. 

So, no, car insurance is not just another expense to add to your budget. It’s all the regrets and mistakes you wish to undo wrapped into an affordable monthly package.

For more information on Pineapple, click here.

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