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The truth behind cheap car insurance

The hidden terms and conditions behind “cheap car insurance” can often cost you more in the end than what a higher monthly insurance premium would have done, according to South African insurer DialDirect.

Less coverage, limited customer support, and hidden deductibles are just three of the many caveats worked into the fine print of low-cost insurance options, so while a certain car insurance contract may be cheaper on a monthly basis, it may not be more affordable in the long run.

These are the biggest red flags you should watch out for when signing your next insurance agreement.

Poor coverage and inadequate protection

Most insurers offer comprehensive; third-party, fire, and theft; and third-party-only insurance, all of which offer varying levels of coverage at different prices.

The low-priced options naturally cover fewer scenarios, but they may also be subjected to unusual restrictions and exclusions that reduce protection even further.

“Your cheap insurance policy might not cover certain high-risk vehicles against theft and could even limit claims for damage to your car while parked,” said DialDirect.

“One of the easiest ways for an insurance provider to keep premiums low is to limit the cover in value and the type of incident — something you might not be aware of until your insurer denies your claim.”

Limited customer support and claims handling

Cheaper-than-average insurers may keep their costs low by cutting spending in departments such as customer service and support.

They may be understaffed or the employees could lack valuable training and resources to help clients lodge a claim or explain the terms and conditions of their policy.

“You may find there is no easy way to track your claim, or you might have to deal with repeated claim denials even when claiming for an incident that your policy covers, and then, you have to work your way through a time-consuming process to dispute the denials,” said DialDirect.

“Alternatively, you could find the payout taking much longer than expected when your insurer approves a claim, causing further inconvenience when you’re already dealing with a lot of stress.”

Hidden fees and deductibles

One of the more prevalent complaints with cheap car insurance is the presence of hidden fees and high deductibles when the time comes to claim, which are sneaky tactics insurers use to keep monthly premiums attractive.

The hidden fees may take the form of surcharges, administration fees, penalties, and even a charge to change your policy. One of these by itself may not be all that high, but they can add up to become a considerable amount.

A high deductible or excess could be equally damaging.

“Imagine you are in a car accident that results in R10,000 worth of damage to your vehicle. You submit your claim, only to be told that your deductible is R6,000 – meaning you end up paying for more than half the repair costs out of your own pocket, even though you have insurance,” said DialDirect.

“Therefore your low-cost car insurance proves to be more expensive in the long run.”

Unreliable insurance providers

There is a very real risk that a low-cost insurance provider may not be financially stable or comply with regulatory requirements.

In this scenario, the company may not be able to pay out a claim, suddenly cancel a policy without prior warning or consultation, or in the worst-case scenario, go insolvent.

“It is essential that your insurer complies with industry regulations because these ensure fair practices and protect consumers,” said DialDirect.

“Disregarding regulations may keep costs low, but it could also leave you unprotected in case of a dispute or claim denial.”

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