It is very common among South Africans to finance their motor vehicles. Insurance cover may be obtained commonly on the market value of the vehicle. However since the car is financed, the owner is indebted to the bank or finance institution for the value of the vehicle purchased on credit.
What can arise is a difference between the insurance payout vs. the outstanding amount owed on the vehicle. This is called a credit short fall which can happen if your car is written off in the first two years typically of signing a finance agreement to purchase a car, you are liable for the difference.
With the increasing indebtedness of South African's it can be almost unaffordable to pay their own money to meet this shortfall after an insurance payout. This is where a top up policy can add real value especially if you buy a new car. As you know cars depreciate the moment you take it off the showroom floor. This means that you incur a potential shortfall straight away because the insurer does not pay your shortfall in the event of accident!
However if you take this additional insurance policy, called top up or credit shortfall insurance you are covered for this shortfall.
The benefit of the top up policy is greater during the first two years of buying a new car. After this period your outstanding finance amount should be on par you're your insurance value. This value add product is hence most appropriate to you in the first two years of owning a car.
These top up policies are targeted towards persons who has purchased a new or very recent model car on a finance agreement. The amount outstanding to the bank is in excess of 80% of the purchase price; If the cost of settling your car finance exceeds the insurance policy cover payout, top-up car insurance takes care of the extra amount.
Top up insurance is typically targeted at people who have an existing car insurance policy in place, e.g. comprehensive or balance of third party.
If you have put down a large deposit then you probably don't require top up insurance. It is advisable to take this product if you have a short fall as described above. To establish if you have a shortfall see the example below.
Suppose, a lady has just financed her Golf GTI through a major bank, and having signed the credit agreement at R320 000. She is now indebted to the bank for this amount.
She also was obliged to take out a comprehensive insurance policy for the car with a leading short-term insurer at the market value of the car. The insurer also gave her the option of purchasing top up insurance cover.
Now let's assume the car is written off or stolen a year later. Since her car insurance is covered at the market value, the insurer pays out to the value of R240 000.
This assumes the car depreciated 25% in the first year which is very plausible. The balance of her car finance now needs to be settled with the bank who financed the Golf GTI. On a typical finance agreement at Prime minus 1%, the outstanding settlement amount is roughly R270 000.
Without the top up insurance the owner has to pay in the difference of the insurance payout received and the finance settlement amount with the banking institution. Thus an amount of R30 000 of her own money is owed (R270 000 − R240 000). However if she had top up insurance cover, the top up insurer pays the R30 000 on behalf of the owner, and she is not out of pocket with exhorbitant cash payments.
Top up insurance can be taken and discontinued whenever you like. It is beneficial to keep the cover in place within the first two years of financing your vehicle, as this is the time where the gap between cover and outstanding finance amount is the greatest.
This product is available from many institutions and finance houses. The common names are: Top Up - by Standard Bank, CoverPlus - by Wesbank, Coversure - by ABSA.
Check your outstanding balance on your finance agreement and compare it to the market value of your vehicle. If the amounts are on par then you do not require top up insurance any longer. Adding to your savings monthly!
You should review the need for your Top Up insurance every year, on the anniversary of your insurance policy. So cancel after it is no longer necessary.
Some insurers realize that this cover is not beneficial after a certain time, so will cancel the cover after a year for example. Therefore it is wise to check your policy for the terms and conditions, exclusions.
The top-up policy is cost effective for both consumers and institutions that finance motor assets. They may even insist on top up cover, which is to the consumers benefit as seen above.
Top up insurance is critical for people who have financed their vehicles, and who owe a large amount on your vehicle. This is typically within the first two years of your finance. It is shown above that without top up cover there are situations where total loss can result in inadequate cover for the insured. Thus making top up insurance a very valuable product to have for your own peace of mind.
Top Up insurance is also known as shortfall protection, gap insurance, Coversure, Coverplus. However 'Top Up' is the most recognizable name in South Africa.
Since they started in June 2012 King Price has seen growth by the thousands each and every month in South Africa.
King Price car premiums decrease monthly as your car depreciates. As an example a
Traditional insurance total premium over 36 months would result in R29 349, but
King Price the total premium over 36 months amounts to R23 520. An
instant 20% saving of over R5 829!