Your car might be underinsured

Will you be able to replace your car with your insurance pay-out?

The recent COVID-19 pandemic and the global supply chain shortage, which followed, have played havoc with vehicle pricing. Due to increased demand and limited supply as well as the fact that many motorists are now driving less, and thus putting less mileage on their cars, used car prices have soared. The knock-on effect is that insurance values have in many cases not kept up with these inflated values and car owners experiencing a total loss, such as if their car is written off or stolen, could find their insurance pay out to be considerably less than the replacement cost of a similar car. When determining the replacement value of a car, most insurance companies use what is called the book value, which is based on long-term trends. While this worked for many years, the recent global disruptions mean that the book value is now very often out of touch with reality. While this is not the case for all models, the trend certainly affects popular models like the Toyota Hilux, Toyota Land Cruiser and Volkswagen Golf GTI. Apart from supply and demand, a big influence on this pricing discrepancy is the mileage. Apart from a car’s year model, the mileage has a significant effect on its price in the used market. With widespread work from home policies, the average yearly mileage dropped from between 15 000 and 20 000km to as low as 5 000km, which means that many cars are now more valuable in the used market and insurance companies are not all taking this into account.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)