TL;DR – Our version of “I’m not reading all that, *SparkNotes pls.”
- Trade value is the value that a dealer would buy your vehicle from you, while retail value is the value they would then sell it for.
- If your vehicle is written off and your claim is valid, you will receive the full Retail value of your vehicle at the time of the loss, less any applicable excesses.
- If your vehicle is financed, and you’re not equipped with shortfall coverage, you could be left owing the bank a hefty amount if your car is written off and a payout is approved.
Why Your Insurance Payout May Be Less Than Expected
Having your car written off is stressful enough. Now imagine trying to make sense of everything, and your insurer hits you with “your payout is less than what your car was worth.” Double whammy, right?
See, most South Africans assume that if their car is written off, their car insurance payout will match the car’s initial retail value. Sorry mntase, but that’s not always the case.
But before we get into the why, let’s unpack what retail value means, how your insurance payout is calculated, and why you might owe the bank after a write-off if your car was financed.
What Is “Retail Value” According To Your Insurance Policy?
Simply put, “Retail Value” is the price a dealer would turn around and sell your vehicle for. On the other hand, “Trade Value” is what the dealer would purchase your car for.
Insuring your vehicle at retail value will usually result in higher car insurance premiums – but will also ensure you the highest possible payout should your vehicle be written off, stolen or hijacked.
Some people call this the “CRA value” online, but between the two of us (come closer; it’s a secret), “retail value” is the correct insurance lingo.
Let’s put this into perspective with an example. Meet Thabo. He recently bought a brand-new hatchback that had a R150,000 price tag.
A car’s retail value is based on its current book value, which is published by motoring industry guides. When using the retail value, insurance companies may adjust the retail value using your car’s condition, mileage, and demand.
This guide considers the following in determining retail value:
- The make, model, and age of the car
- The year the car was manufactured
- Mileage
- Condition of the car
- Market data
So, retail value is the value which the dealer sells you a vehicle for. If your vehicle is insured for retail value, and your claim for a write-off is valid, you will be paid 100% of your retail amount (less excess) at the time of the loss. Just remember, your vehicle’s retail value depreciates with time. This means that the retail value of the vehicle when you buy it will not be the same some years later.
However, if you’re not getting the same amount as you paid for the vehicle, a range of reasons could explain this.
What Deductions Are Made From Your Insurance Payout?
So, Thabo’s car’s retail value when he bought it was R150,000. Unfortunately, five years later, he wrote it off in an accident. Due to depreciation, the car’s retail value at the time of the accident is R100,000. This means he should be entitled to receive that R100,000 if his claim is valid. However, don’t forget about that excess!
1. Excess:
This is the amount you agreed to contribute towards any claim when you first signed up for your insurance policy. It also works to reduce your monthly insurance premiums. Think of it like your share of the bill, lowering the overall amount you need to pay.
Example: Thabo’s excess is R5,000. If his claim is R100,000, his insurer will pay R95,000, after he first pays the R5,000 fee. It’s like splitting the bill at Spur, except the milkshake costs thousands.
2. Depreciation:
Certain purchases grow in value over time, but unfortunately, a car isn’t one of them. The value of your car drops from the moment it leaves the dealership, and while not all cars depreciate at the same rate, most depreciate at a rate of about 15-30% a year. So you can expect it to have halved after five years of owning it. This natural loss in value over time due to age, mileage, wear, and tear directly lowers your payout.
Example: If Thabo bought his car for R150,000 three years ago, but its current retail value is R100,000, his payout will be based on the current value, not the “then value”.
Side note: We say current value because your vehicle’s retail value may change due to depreciation.
3. Betterment:
Sometimes, replacing or repairing parts can leave your car in a better condition than before the accident. This is called betterment. While this sounds amazing (for you), it’s not the reason insurance exists. Insurers will apply a “betterment deduction” in cases where betterment occurs, ensuring you’re not accidentally benefiting from the claim.
Example: Thabo’s car’s bumper was not in a great condition to start with and has now been damaged irreparably in an accident. However, the dealership only stocks brand new bumpers. This upgrade makes his car more valuable than initially, prompting the insurer to deduct a bit for betterment. Lekker for resale value, not so lekker for payouts.
4. Third-party claims:
Here’s how it usually works: if your claim is valid, you are paid out in full (minus the excess, of course). Simple.
Now, what about the other driver? That’s where the third-party claim comes in. If you’re 100% at fault, your insurer covers the other person’s damages. If the other person is completely at fault, your insurer pays you out and then reaches out to them to try and recover what they paid.
But sometimes, it’s not that black and white. If both of you share the blame, the insurers will crunch the numbers, split the fault into percentages, and pay out accordingly. Fair’s fair.
What If You Still Owe On A Financed Car?
Forget a Jet2 Holiday, nothing beats a “Buy Now, Pay Later” deal, and South Africans know this all too well, with many choosing to finance their cars. But did you know that if you finance a car and it gets written off, you might still be liable to pay the bank something out of pocket if it hasn’t been paid off yet? This is called a shortfall, the gap between what your insurer pays out, based on the vehicle’s insured value, and what you still owe the bank.
Sounds hectic, right? This is where shortfall cover comes in, an optional benefit of Pineapple’s comprehensive insurance policy. (Okay, so it goes by various names, but whether you want to call it a shortfall benefit, credit shortfall, or gap cover, oksalayo, if your vehicle is financed and not paid off, you may need it.)
Remember Thabo? He bought a car worth R150,000. The bank covers him with a loan of R150,000, but thanks to interest, he may pay close to R300,000 over the six-year term.
Fast-forward three years. He’s halfway through the loan and has already paid about R150,000. Then, boom, his car gets written off. He still owes the bank R150,000, but Pineapple steps in and pays out the depreciated retail value of the car, say R100,000. Since the bank technically owns the car, that payout goes straight to them.
Now the bank’s happy because they got their R100,000. But Thabo? He’s still stuck owing R50,000 on a car he no longer has. That’s where credit shortfall cover saves the day, bridging that ugly gap.
So shortfall cover pays the difference between what your insurer pays out and what you still owe the bank. Basically, it’s the friend who covers the bill when your card declines. And at Pineapple, we’re that friend.
If your vehicle has been financed, you can add credit shortfall as an optional extra to your comprehensive cover, which makes adding that extra layer of security to your wallet super easy. All it takes is a few taps in the Pineapple app or asking one of our super cool agents to add it to your policy if you’re getting a quote over the phone.
Speaking of quotes, why not get a free comprehensive car insurance quote right now? Click here; it only takes 90 seconds 😉
Can You Dispute A Payout Value?
Maybe you feel like your car’s retail value should’ve been slightly higher, or you’re scratching your head at the deductions. Whatever the reason, you might wonder if you can dispute your payout.
Since we insure vehicles according to the Auto Dealers Guide, the insured value is dependent on this guide.
That said, there are exceptions. Take classic cars, for example. Their market worth often doesn’t match the guide. In that case, you’d need to provide two dealership-approved valuations and specify the amount you’d like it insured for. That way, your payout reflects the car’s true value.
If you’re unsatisfied with your payout, you can contact the NFO (National Financial Ombud Scheme). They are an independent body that helps consumers and insurers settle disputes without dragging things to court. And the best part? They don’t charge you a cent.
Pineapple aims to ensure you never need to contact NFO, though. But hey, it’s nice to know the option’s there, right? 👉👈
Frequently Asked Questions About Car Insurance Payouts
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What is the Auto Dealer’s Guide?
Think of the ADG as the car industry’s “price bible.” Dealers, banks, and insurers all use it to determine your car’s worth. It considers your car’s make, model, mileage, condition, and market demand to determine its fair market value. So when insurers say they’ll cover your car for “retail value, ” they pull that number straight from the ADG. -
Why Wasn’t I Paid What I Paid For The Car?
Cars are depreciators. The minute you drive off the dealership floor, your new car starts losing value. Insurance pays out for what your car is worth, based on the current insured value, and not what you originally paid. So even if you forked out R150,000 at the purchase stage, your payout will reflect today’s retail value. -
Can I Choose The Value Type Under Which I’m Insured?
Yes, you can. But it ultimately depends on your insurer. The three common value types are retail value (the highest payout option, based on ADG price), the market value (usually a bit lower, based on what you could reasonably sell it for), and trade-in value (the lowest payout option, based on what a dealer would give you if you traded the car in tomorrow). -
Will Gap Cover Pay Off My Loan Balance?
Yes. If your car is financed, gap cover (aka credit shortfall cover) steps in when your insurance payout doesn’t cover the full amount you still owe the bank. This ensures you’re not stuck paying for a car you no longer have.
Want Full Coverage? Understand Your Value Options First
Listen, we get it. Insurance can be ‘n bietjie complicated. That’s why we do things differently: simply, clearly, and straight to the point.
Knowing your car’s retail value and how your payout actually works is like walking into a new restaurant with the menu already in hand – no surprises, no stress. And with Pineapple, getting that clarity is super simple.
With us, everything you need is upfront: Cover for your vehicle’s retail value, shortfall protection, and an app that makes quotes, claims and policy updates quick and painless. No phone calls (unless you want one), no paperwork, no sneaky extras. Just car insurance that saves you time, money and headaches.
Ready to make the switch? Click here to get a free quote in 90 seconds and see how easy insurance can be.
Pineapple (FSP 48650) is underwritten by Old Mutual Alternative Risk Transfer Insure Limited, a licensed Non-Life Insurer and authorised FSP. T&Cs apply.
Please Note: The information provided above is for informational purposes only; you should not construe any such information as legal or financial advice.
