By Keletso Mpisane
‘My insurance premium is high because I drive a risky car,’ ‘My premium will go down once I am older than 25,’ ‘If my car was black or white, I would be paying less.’ These are just a few beliefs people hold about car insurance. While those sharing these myths may have good intentions, they can mislead people about what happens behind the scenes at an insurer.
Insurance providers want to avoid misunderstandings about policies because it can lead to frustration or a loss of trust.
In an effort to clear up the myths, let's dive into them and get down to the truth of what happens.
Myth 1: “My premium will go down once I am older than 25”
Some believe age is the biggest determining factor for their premiums. There are no hard and fast rules here - you don’t just pay more because you are 21.
If your insurance premium looked like a restaurant bill there would be a section where you’re charged based on what we expect you to claim, another line item would be the cost of our operations, plus the cost of additional benefits, and the standard SASRIA premium as well as value-added tax.
Factors like your past claims, where you live and work, the cost of the items being covered as well as your driving history and yes, how long you’ve had your driver’s license as well as your age are considered when pricing premiums.
It's about more than just your age. When an actuary works on your insurance profile, they use mathematical and statistical models to figure out how to minimise risk for the insurer while giving you the fairest price for your cover.
We take things a step further and use the latest technology and information about you to build an individualised, rather than a generalised, risk profile.
Myth 2: If my car was a plain colour, I would be paying less for insurance
Bright colours like hot pink, red or yellow can make for higher insurance bills. The misunderstanding is valid because auto repair shops might charge more to repair a car with matte or pearl colours.
This is why we ask customers if their car has any modifications. The cost of this modification could lead to a higher premium because custom colours are beyond what manufacturers offer.
You must disclose car modifications.
If the insurer doesn’t know about your custom paint job, they cannot cover it and this could leave you with a payment shortfall when getting repairs, because the cost of your paint could be higher than the standard dealer options that your provider used to calculate your car’s value.
Myth 3: My car tracker means I will pay significantly less
Vehicle trackers can aid in the recovery of a stolen car, mitigating the risk you pose to the insurer. Having a GPS tracking device can indeed result in lower monthly premiums depending on your provider.
Many kinds of trackers and usage-based devices can be installed to provide real-time data on how you accelerate, take corners, brake, and how much you drive in a month.
It is best to find out what kind of impact different trackers have on your premium directly from your insurer. Some cases may offer additional rewards depending on the kind of device you install.
Myth 4: Rewards points are not really worth it
Understandably, some people feel that rewards programmes don't make a difference. Programmes differ from provider to provider and sometimes the rewards available to you depend on having a usage-based tracker, or it could be linked to other factors.
Rewards points should make a material difference in people’s lives. When they do, they can effectively incentivise good driving behaviour meaning insurers take on fewer risks.
Do an annual review of your insurance to make sure you are still getting the best deal and that the rewards make sense for your personal needs.
Myth 5: My insurance premium is high because I drive a risky car
There are no risk-free cars. Statistics might indicate that particular cars are stolen more than others but that could simply be down to there being more of those cars on the road than others. One should not assume that they are just riskier.
How often you drive in high-crime areas, how many times you drive at night and the daytime and overnight locations of your car are all factors that determine its risk.
This is important to clarify because the advice that you should avoid buying certain cars because they are “riskier”, could mean you end up with a car you cannot afford or one that doesn’t fit your needs.
Myths can be a great reminder that there is usually more to things than it may seem on the surface. It's always better to find out from your insurer when in doubt.
* Mpisane is the head of Blink by MiWay.
PERSONAL FINANCE