Car insurance and no-claim-bonuses
There are many arguments for and against the benefits of no-claim bonuses.
Decoding no-claim bonuses
Basically, motorists are enticed by their insurance companies to think twice before lodging a claim.
They are wooed with a 10% cash-back reward if they remain claim-free for a period of three years. The amount of these no-claim bonuses can vary from one company to the next. However, the figures mentioned are generally an industry standard.
The no-claim bonuses means that policyholders who do not make a claim for three years will get cash back. That is because, in most cases, insurers load policy premiums from the outset to absorb the reward lump sum.
Trick or treat?
Whether no-claim bonuses are a trick or treat is open to interpretation.
The treat aspect is that a motorist with three consecutive claim-free years will be given back a cash balance. Let’s say his policy is R1 000 a month which translates into R36 000 after three years. At the end of the no-claim period, he will receive R3 600 in cash.
According to King Price Insurance, the trick is that insurers discourage policyholders not to claim simply because they want to avoid paying out.
Apparently, the fear of losing a no-claim bonus has resulted in countless numbers of policyholders footing the bill for minor scrapes than running the risk of losing their claim-free three-year reward.
The long arm of the law
The South African short-term insurance industry must adhere to the laws and regulations stipulated by the Financial Services Board. One of these limits what insurers may do or say to attract new clients.
According to King Price, the insurance industry inflates premiums from the outset and places that cash into a reserve to pay back no-claim policyholders their own money after the three year period.
iWyze’s scratch and dent insurance
Old Mutual’s vehicle insurance division, iWyze, has come up with a scratch and dent policy to keep vehicles looking good and allowing policyholders to side-step losing a no-claim bonus reward.
Claiming for scratches and dents with this separate type of insurance allows motorists to keep their vehicles in tip-top conditions without the threat of losing their no claim bonus.
However, there do appear to be some drawbacks with a scratch and dent insurance option.
Apparently, excess payments also apply to a scratch and dent policy as is the case with other vehicle insurance products.
Also, according to iWyze, policyholders cannot lodge a claim each and every time their vehicles are damaged, but the company will pay out for a reasonable number of claims during a 12-month period.
While the pros and cons of no claim bonus rewards are open to interpretation, there can be no doubt that it makes total sense to investigate the merits of this reward before paying for minor bumps and scratches out of your own pocket.
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