Comprehensive motor vehicle cover refers to the comprehensive list of cover for which the vehicle is insured in the event of loss or damage – i.e. theft, fire, third party liability and the like. It does not refer to the extent or amount of that cover.
Our office continues to receive complaints from bewildered consumers who fail to understand why their comprehensive motor insurance does not adequately cover the full loss of their vehicle following an insured event.
Market value, retail value and trade value
- The market value of a vehicle is generally defined as the price a willing buyer is prepared to pay a willing seller for a vehicle.
- By contrast, the retail value is the value that your car will sell for, or will retail for at a dealership. Retail value is therefore the closest value to the actual replacement value of a vehicle.
- Trade value is what a dealer would pay you when you trade in your car. It stands to reason that trade value is the lowest of the three values.
Naturally, and because the risk to an insurer differs depending on the value attributed to a vehicle in the event of a loss, insuring a vehicle at retail value will carry a higher premium than insuring it at market value. Insuring a vehicle for trade value will be cheaper than market value. And, of course, the payout that you will receive from your insurer will depend on the selection that you make when you enter into the policy.
Case Study
Take Mrs M for example. Following the purchase of her brand new Hyundai i20, Mrs M took out comprehensive motor vehicle insurance with an insurer. During the sales conversation she informed the insurer that she had just bought her vehicle which she financed through her bank for an amount of R250 000. She was quoted a monthly premium to comprehensively cover loss of or damage to the vehicle with the vehicle valued at retail value. After she complained that the premium was too high, the insurer made some adjustments to the quote and provided her with a new quote at a lower premium. What Mrs M did not appreciate at the time was that the new quote set the value of the vehicle at market value and not retail value.
A few months later Mrs M was involved in a collision which resulted in her vehicle being written off by the insurer. At this stage Mrs M still owed R240 000 to the bank for her financed vehicle. The insurer accepted and approved Mrs M’s claim based on the market value of the vehicle at the time of the loss. After the excess had been deducted, the insurer paid R190 000 to the bank in full settlement of Mrs M’s claim. Unhappy with the fact that she was left with a R50 000 liability to the bank, Mrs M approached our office for assistance.
Mrs M argued that she was comprehensively covered and so should enjoy a comprehensive pay-out for her loss sufficient to extinguish the full liability of her outstanding finance amount. In assessing the complaint this office listened to a recording of the sales conversation and looked at the wording of the policy that was sent to Mrs M. It was clear from both these items that the insurer had informed Mrs M that in the event of a loss her vehicle would be assessed by reference to its market value. We confirmed that the insurer had applied the correct market value to the vehicle when it assessed the claim. In the circumstances we were unable to come to Mrs M’s assistance.