The expensive car insurance trap and how to fix it now
If you've got comprehensive car insurance, address this problem now, before you’re faced with a financial blackhole should your car get written off in a crash…
One of the unintended and unforeseen consequences of the current new-car shortage is a significant spike in used car values.
This is used car spike is because some people cannot wait for a new car because they get crashed into, or crash themselves, or perhaps their old vehicle could no longer keep going. As it turns out, cars have a lifespan.
You can see previous reports on this below for context.
If you’re in this position, you can’t wait 6-12 months for a new car, so you often go on the hunt for a late-model used car instead. Because you need transport now - getting kids to school, running your business, whatever. The spike in demand for used cars, flowing from the shortage of new cars, has pumped up the price, significantly, and why used car prices are at stratospheric highs.
This is a problem if you have an ‘agreed value’ insurance policy. That’s where the insurer pays you the sum you jointly agree on, in the contract, in the event of a write-off.
Usually I’m a fan of ‘agreed value’ because the alternative is ‘market value’. Market value is non-specific. So, your car gets written off and the insurer inevitably undervalues yourdead vehicle. You think your car was worth, for example, $25,000, but the insurer tells you they think it’s worth $20,000. Now you’re in a dispute, and they’re holding the power, and all you’ve got is a mangled car going nowhere.
So, generally, agreed value is the smarter option. But insurance tends to be insidiously ‘set and forget’. They send you a renewal every year, the agreed value takes a dive, incrementally, each year (because the car is older) and you pay it, typically without all that much due consideration.
But when there’s one of these spooky, unforeseeable events - global pandemic, lockdowns, nutbag protests, global computer chip shortage - it’s all a struggle for carmakers to keep up with demand, but it’s you, the consumer, who gets the rough deal.
And, as you are doubtless aware, this situation is not pleasant when the agreed value of your write-off is, again for example, $20,000 - but the actual the replacement cost of an equivalent used car has spiked to, say, $25,000.
If this happens to you, in addition to the recent stress of pandemic, job uncertainty, ongoing high-level political incompetence, plus the stress of having your car totalled - you get a payout from your insurer that’s something like five grand short of levelling you back up into an equivalent car.
Insurers are typically not on the front foot in circumstances such as this, and they’re hardly incentivised to ring up and say, ‘How about we pay you more in the event of a claim?’ So they’re not especially proactive on this. And far from helpful to you.
Therefore, you should research the street value of your car now - use Carsales or Redbook, Gumtree, whatever - and get a feel for what it would cost you tomorrow to replace your pride and joy, in the event someone smashes into you at a set of traffic lights.
Then call your insurer, and sound them out about upgrading the agreed value in your contract, in line with actual market values now. Don’t put this off - because negligent dickheads are everywhere in traffic. And one could easily get target lock on you this afternoon.
USEFUL RESOURCES FOR CONSUMERS LIKE YOU
Can I get out of my novated lease contract? >>
New car stock shortages: Discounting? What should you do? >>
The top 5 lessons you need to know about new-car shortages in 2021 >>
How to get out of buying a new car after signing the contract >>
HOW CONSUMERS LIKE YOU CAN PROTECT YOURSELVES
New car lemon protection: This free consumer hack could save you >>
Top 10 critical mistakes most new car buyers will make in 2022 >>
New car warranty doesn't matter: Only customer support does >>
My AutoExpert AFFORDABLE ROADSIDE ASSISTANCE PACKAGE
If you’re sick of paying through the neck for roadside assistance I’ve teamed up with 24/7 to offer AutoExpert readers nationwide roadside assistance from just $69 annually, plus there’s NO JOINING FEE
Full details here >>
These flashlights are awesome. I carry the Olight Warrior Mini 2 every day - it’s tiny, robust, and super useful in the field or in the workshop. Olight is a terrific supporter of AutoExpert.
Use the code AEJC to get a 12% discount >>
The all-new Kia Tasman 4X4 dual-cab ute is finally coming to Australia in mid-2025. The covers are off, too. Here’s everything we know so far