Car insurance vs. self-insuring

It is no secret that car insurance has become increasingly expensive in the last couple of months and providers notoriously find ways to not pay out. Then there is also the excess fee to consider. Moneybags journalist Danielle Van Wyk takes a look at the pros and cons of self-insuring and whether it is in fact possible.

Having car insurance has always been positioned to be an essential. Industry providers always harp on about how important it is to secure such cover before you are able to drive your car off the dealership floor and the product is marketed on a regular basis on television screens, on radio and online. .

Of course, knowing that you have something to fall back on is comforting as accidents can happen at any time, potentially costing you thousands. But what if you’ve got some money tucked away? Is self-insuring an option then?

According to Riana Wiese, insurance adviser at PSG Meesterplan, the short answer is no.

“Self-insuring should never be an option due to the risk of possible 3rd party liability claims made against you, should you be responsible for the incident/accident. This can also lead to financial ruin in the event of a multiple bumper bashing/pile-up or collision with an expensive vehicle such as a Porsche or a commercial vehicle such as a bus or truck, or any damage to a third party property (i.e. boundary wall, etc.),” adds Wiese.

Self-insurance has never been a good option, reiterates King Price: “The ‘science’ of insuring with a trusted insurer has been proven countless times: Many people contribute to one fund to ensure there’s sufficient funding to cover losses for all the people who contribute. But, it would take most people decades to build up a self-insurance fund that’s big enough to cover all the potential risks. The best solution has always been a healthy insurer who’ll settle valid claims quickly.”

Pros and cons to self-insuring

Wiese believes that there are no pros towards self-insuring. However, the benefits would include things like having that extra money a month to save, having the choice of going to your preferred provider if you are in an accident and not having to deal with the headache that is claims call centres.

The cons however, are : “losing a valuable asset, financial ruin due to liability claims made against you, and you have to deal with legal matters in the event where you have to claim against a third party to recover your damages, or where a third party claims against you.”

If you’re thinking about self-insuring, do the math first, adds King Price: “Put a value to every single pair of shoes in your cupboard, and every single knife and fork in the kitchen. Then add values for everything else in your home, from the garden furniture to the glasses. Then add what it would cost you to rebuild your home from the foundations up. And then include the things that leave home with you every day: Your watches and jewellery, your handbag or briefcase and sunglasses, your car and your cellphone.  Everything. If you have an amount equal to this figure sitting in a bank account, which is earning interest that’s equal to inflation, and which will always be there, then self-insuring may be an option for you. If not… Don’t consider it!”

Here’s another working example: Let’s imagine you were to put away R500 each month for a year, as a savings pocket of sorts because you’ve ditched your car insurance and are opting to self-insure.

At the end of the year you are looking at having saved R6000, while that doesn’t sound like a half bad investment, is it enough if you have an accident or simple fender bender?

According to go.dent, a car repair and online quotation service, the cost to merely have minor paint scratches or scuffs on one of your doors fixed will cost you in the region of R2482.50.

That being said, it is easy to imagine how many thousands being involved in an accident could set you back, especially if it is your fault. Anything above a minor dent or scrape would eradicate your R6000 saving and any other potential funds you have.

In light of the above, when asked if car insurance is still recommended above self-insuring, Wiese responds: “Car insurance is definitely a necessity. Your vehicle is one of your most important assets which needs to be insured against own damage, in the event of your vehicle being written off/stolen/hijacked or against liability claims made against you, etc.  The risk of being involved in an accident is on the increase due to the amount of vehicles on the road these days.”

With more than 10 million cars on the road in SA, car insurance is more necessary than ever, concludes King Price.