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Why is my car insurance premium so damn expensive?

Car Insurance

Why is my car insurance premium so damn expensive?

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If you’re reading this, you are either one of 3 people:

The Newbie: You just bought your first car (or thinking about it), and are shocked at how high car insurance premiums actually are. You’re now probably even considering not getting insurance at all (bad idea!)

The wanna-be Saver: You’ve been driving for a while, and are looking to reduce your monthly costs. You’re now looking at how you can cut down on feeding the insurer your hard-earned money.

The Legend: You are some curious soul; indulging yourself on another one of Zonotho’s life-altering articles. 🙂

Whichever one you are; this will give you some insight as to which factors are – probably – driving your premium up. And although this list isn’t exhaustive, is contains what appear to be the main causes for your seeming Everest-like premium.

Age and driving experience

Simply put, the older you are, the cheaper your premium will be.

If you’re between 18 to 25, chances are that you’re facing a mammoth of a premium. The reason for this is a phenomenon termed the “Accident Hump”; Drivers, in this age band, are statistically more likely to have car accidents than older, more experienced drivers.  You’re now probably thinking “not me!”, but so is everyone else!

Also: You may be past that age band but if, like me, you got your licence relatively late in life, then you may also be paying stratospheric premiums. The reason is simple; the more experienced the driver, the less likely he is to have car accidents. Now, there are many methods to measure driving experience, but most insurers tend to use how long you’ve owned a licence as a good indicator of how good you actually are at driving.

Unfortunately, the only way out of this one is to stick it out and wait.

Cover Type

Comprehensive cover vs 3rd party liability.

Comprehensive cover would cost you more because it is – for a lack of a better word –comprehensive.  You would most likely be covered for damage to your and other people’s cars, theft and a range of other events. (Check your policy document carefully as cover may differ between insurers).

3rd party Liability insurance would protect you only against claims of another (the third) party, and not your own (first party). Since it covers less, it would be cheaper.

Also if your cover has other “fancy” terms attached, you may find that you are paying more for these. (E.g. no-claim discounts and/or bonuses for not claiming over a certain period).

Think carefully about the cover that you need and can afford. There’s no point in trying to save money by getting insurance that would not actually meet your needs. But you should also not get drawn into getting cover that you cannot reasonably afford!

Your car itself

The more expensive your car is to replace or fix, the higher your premium will probably be. Cheaper car = cheaper insurance (all else equal!).

Where are you parked at night?

Depending on where you park your car at night, you may be bearing more or less of the brunt in insurance premiums. If you park your car on the street, then you may find that your premium is higher than if it was parked in a locked garage or security complex. Investing in that garage door may save you some bucks at the end of the month.

Excess level

Excess is the amount of money you need to first pay yourself, before your insurer takes over the payment. So, say your excess is R5000, and you claim for R10,000, you would have to first pay R5000 excess, then the insurer would pay the balance of the claim.

Look, you can always increase your excess to decrease your premium, but be careful. If you cannot afford that large excess when you need to claim, you may find yourself in a bit of a pickle!

Final words

So what is the right cover for a reasonable price? Well an approach you can take is to determine the level of insurance you actually need -and can afford- and then shop around for it, comparing premiums as you go. But be careful, not all cover is the same, so be sure what you’re getting into. There is even info that suggests that certain insurers actively try their best not to pay your claims.

If you’re facing trouble in this regard (or just curious to find out which companies to watch out for) you should probably check out our article on the ombudsman and its report.

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Benjamin is a corporate actuary, currently working at a major financial services firm. He has experience in wealth and investment products. Benjamin is very passionate about teaching and empowering minds.

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