Don’t un-insure your financed car

In South Africa, 40% of new cars and 42% of used cars are financed and thus should be comprehensively insured. However, just three out of every 10 cars on the road is insured at all. The numbers simply don’t add up.

While insurance isn’t compulsory in South Africa, you can’t drive a financed car off the showroom floor without first having comprehensive cover in place. But the numbers show that many consumers sign on the dotted line for this cover and then cancel it, leaving themselves open to financial carnage if their cars are subsequently written-off, or stolen.

Here’s why: The institutions that provide car finance make it a contractual obligation for you to have comprehensive insurance when you sign the loan agreement with them. This is because financed cars remain their property until you’ve paid back every cent you borrowed, plus all the interest and any other charges. If you keep the insurance current, your insurer will settle what you owe the financer, and then pay any remaining balance to you, subject to the insured value of the car, in the event of a valid claim for a total loss. However, if you cancel this insurance, and the car is written off or stolen, you’ll be personally responsible for any outstanding finance amounts – and you won’t have a car to show for it.

There are also liability implications that could leave uninsured drivers open to claims in their personal capacities for accidental damage that they cause to other people’s property. And, these third party liability claims can easily run into millions of Rands.