Here’s how to effectively reduce your car insurance premium

With petrol prices reaching record levels, you may want to reduce your budget. Cutting back on car insurance can be costly if you end up with a loss. But if you understand how your premium is calculated, you can reduce it.

Santam, the country’s largest short-term insurer, says multiple ratings and risk factors are used to determine your insurance premium rates and underwriting requirements. These rating factors include:

Personal details: Your gender, age, marital status, how long you have had a valid driving licence, your driving ability and usage based on telematics, and any voluntary excesses you choose.

Geography: Where you live, the type of area, whether the car is parked in a locked garage, the kind of access to your property, and whether or not you work from home.

Car details: These are specific to your car and include the make, model, age, replacement value, cost of parts, whether the car is being used as a personal or business vehicle and who is the regular driver. Higher performance cars will attract higher premiums. If you modify your car with a performance exhaust or other performance details, that will also drive up your premium.

External factors: Your credit profile (which tells insurers how likely you are to cancel cover, miss a premium, or claim); previous claims history; labour costs; and the exchange rate.

Tyrone Lowther, head of Budget Insurance, says that because an insurance premium is based on the above factors, which are specific to you, it is vital that you answer insurance questions honestly before taking out a policy.

“If you are not sure about an answer, rather tell the consultant this and get back to them later.

“An important consideration is that some cars are more susceptible to theft than others. For example, a very common model on the roads is easy to obtain parts for, so it is likely to be a greater target for theft,” he says.

Lowther says that it is impossible to control the portion of your premium affected by your car’s make and model.

But you can ensure affordable premiums by claiming only when it is strictly necessary, ensuring that your car security is as good as possible, and driving safely to minimise the chance of an accident.

The value of the car is the most important factor influencing your premium calculation.

Most car insurance policies are based on the retail value of your vehicle rather than the market value. The retail value is the amount you paid the dealer, and the market value is what a reasonable buyer would pay for it. The market value is based on research, and dealers commonly refer to it as the “blue book” value when you trade in your car.

Both values drop annually. The onus is on you to contact your insurer annually to check that the insured value has been adjusted.

Some insurers offer to insure your car for “better car value”, which means you would get a car model one year later than your current car and with lower mileage. However, be aware that the value of the “better car” can be 15% to 40% higher than the retail value of your current car. Your insurance premium would also be higher to reflect this.

While many insurers say the colour of your car does not play a factor in your premium, it does.

The myth is that, for example, red cars are considered riskier than white cars because drivers of red cars tend to drive faster. While this may just be a myth, the reality is that the cost of the paintwork when repairing your car does play a role in your premium.

If, for example, your car is metallic blue, it will be more costly to repair when it comes to painting the bodywork to match the rest of the car than it would be if your car was a flat white. 

Keep your premium down

Stay insured: The longer you’ve had uninterrupted car insurance with any provider, the better your premium will be. If you have regular breaks in your cover, your insurer may think that you only get insurance when you have a higher probability of claiming (for example, when you are going on a road trip).

Avoid cashback and bonuses: While these bells and whistles are attractive, they are usually funded by you via a higher premium. It means you are tied to a particular insurer rather than being able to shop around annually.

Cover minor damage yourself: The more you claim, the higher your premium will be. You also have to pay an excess each time – this is the portion of risk that you cover. It could be a fixed amount such as R2,500 or 10% of the value of your claim. It may not be worthwhile to put in a claim for minor damage, particularly when it will only increase your risk rating and monthly premium.

Obey the law: Insurers will ask if you have been convicted of drunk driving or if an insurer has cancelled your insurance for reasons other than non-payment. North says this information gives an insurer insight into your driving behaviour and the likelihood of claiming. If the answer is yes, you may end up paying more for cover or be unable to get any insurance.

Choose your excess: If you can afford to set aside a fixed amount, such as R10,000, to cover a higher excess, this will reduce your monthly premium. You can park the R10,000 in a savings vehicle where it can earn interest – putting more money into your pocket rather than in the insurance company’s coffers. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.