Diana Clement 's Opinion

Your Money and careers writer for the NZ Herald

Diana Clement: Misleading an insurer can lose your cover

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Read the fine print to ensure you stay within the policy rules

A vehicle accident for which you're not insured can be financially crippling. Photo / Thinkstock
A vehicle accident for which you're not insured can be financially crippling. Photo / Thinkstock

Motor vehicle insurance doesn't give new for old as home contents policies usually do.

Most of us have car insurance. It's a necessary evil.

Hit the roads without it and you could be saddled with a bill for thousands of dollars for wiping out even a modest car. Or do something stupid on a level crossing and you might be liable for the cost of replacing one of Auckland Transport's flash new electric trains.

The concept of car insurance is quite simple. You pay an annual premium and in return if you suffer a financial loss as a result of an unforeseen event such as theft or an accident, the insurance company pays to put it right. Usually that's by way of repair. But if the car is "written off", that is, more expensive to repair than replace, or stolen, then you will be paid out the current value of the vehicle.

That's not necessarily the sum insured. Although you pay premiums on what you estimate the value of the car to be, motor vehicle insurance doesn't give new for old as home contents policies usually do.

It's just there to pay for what you have lost. If you paid $14,000 for a second-hand Honda five years ago and an equivalent Honda would only fetch $9,000 if sold now, that's the most you'll get — less any excess. Some companies offer agreed value policies, but they don't let you insure for way more than the vehicle is worth and they will usually reduce the agreed value each year.

Some policies come with bells and whistles such as roadside breakdown assistance, others offer excess-free windscreen repairs, guaranteed parts and workmanship, no-claim bonuses for life and complimentary courtesy cars if you can't use your vehicle.

It's really important to check carefully what is automatically included in a policy and what is not, says Sacha Cowlrick, general manager for product, pricing and underwriting at IAG, which owns AMI, State, and NZI Insurance. You will usually pay more if you want a windscreen extension that waives the excess, cover for a hire car or roadside rescue.

Conversely, says Amelia Macandrew, customer relations manager at AA Insurance, if money is an issue and you still want comprehensive insurance, consider going without all the extras.

Sometimes comparing prices is a bit of a matrix. There are many discounts to be had, including for buying online or buying more than one policy with the same company, and discounts such as NZI's low kilometres reward. AA Insurance and others will reduce your premium if you have a professionally fitted car alarm or immobiliser.

Tower offers a discount to customers who use its SmartDriver app. This smartphone app tests your driving over 350km and if you're a good driver, you can get up to 20 per cent off your premium. Tower's experience has been that some drivers who consider themselves to be better than average drivers aren't anything of the sort. Many blame hard breaking and hard acceleration on other drivers, but the reality, says Tower's Mark Savage, is that they lack road awareness.

Whatever the bells and whistles and discounts available, the most important thing is to ensure that you're actually covered by the policy. The Ombudsman hears many cases of people who have paid premiums for years only to find the policy was void from day one because they omitted to tell the full and honest truth. More often than not, this is the car owner's fault, not the insurer's.

It's common, for example, for parents to insure their teenage children's cars in their own name, says Insurance and Savings Ombudsman Karen Stevens. That's the case whether or not the parent or the child owns the car.

Parents often buy the car for the child, but put the ownership in their name because they think it will make insurance premiums cheaper. What matters is that the child is the main driver and must be declared so or claims can be declined.

In the case of young drivers, inexperience often equates to a lower level of hazard recognition and less ability to safely negotiate identified hazards, says Stevens.

Reaction time of a young driver is often slower than that of an experienced driver. As a result, insurance companies charge more if the car is driven by a young person.

Modified cars are another cause of claims being declined. People who have mag wheels on their car, souped-up exhausts, more powerful engines, or even tinted windows are statistically more likely to claim.

AA Insurance's Macandrew says it looks at anything that is not on the car's original specification or that will make it more attractive to thieves. The modifications need to be declared and the owner pays a premium commensurate with the risk.

Trying to hide modifications, or anything, from the insurance company, isn't clever. Insurance companies argue that they would not have insured the car had they known the truth and therefore can void the policy from the day it was taken out.

Driving and other offences such as theft and assault need to be declared. Someone who has convictions for dishonesty is more likely to fake a car theft or inflate a claim. Those declarations enable the insurance company to measure your risk.

If convictions are not declared, and that includes for your children, you can kiss goodbye to cover from then on. Insurance companies use ex-policemen as investigators and have access to the New Zealand Transport Agency database, which increases their chance of finding out.

Each year's policy is a new contract, so anything that could stop an insurer offering cover must be declared at annual renewal — not just the start of a policy, says John Lucas, insurance manager at the Insurance Council of New Zealand.

Drink driving is another way to shoot yourself in the foot. From December 1 this year the allowable blood alcohol level goes from 80mg of alcohol per 100ml of blood to 50mg. Anyone found with this lower limit at the time of an accident will not be covered by their insurance, says Lucas.

You don't even need to be convicted of drink driving to invalidate your cover. An insurer can still decline if the driver was "under the influence" of alcohol. The insurance company's experts can determine from readings taken long after the accident whether or not the driver was over the limit at the time of the accident.

Lying to an insurer is a real no-no as well. In one case heard by the Ombudsman a car owner failed to admit on his claim form that he had drunk one bottle of beer before the accident. There is no way he would have been over the drink drive limit. But the untruth allowed the insurance company to decline the claim on the basis of a false statement on the claim form. Insurance is based on the doctrine of "utmost good faith" and the policyholder didn't display that.

Breaching the terms of your licence is another gotcha. This catches young people on restricted licences who drive with passengers and/or after 10pm without a supervisor. If an accident happens in those circumstances the insurance company's first response will be to decline the claim.

Stevens says the law states that if the breach of the terms of your licence didn't cause or contribute to the accident then you should be covered. The trouble is that most customers fail to prove beyond the balance of probabilities that the breach did not cause or contribute to the accident. A qualified driver might have pointed out that the young person was driving too fast for the conditions.

If you own a bit of a banger, still make sure you've got insurance. Paying Auckland Transport back for one of its trains could wreck your finances for a long time — even if you end up bankrupt to clear the debt. Most insurers offer third-party policies which cover damage to other vehicles and property if you're at fault, and "third party, fire and theft", which covers just what it says. The premiums for third party are usually around the cost of a cup of coffee a week.

- NZ Herald

Diana Clement

Your Money and careers writer for the NZ Herald

Diana Clement is a freelance journalist who writes about personal finance and careers. She has worked as a journalist for more than 25 years in both New Zealand and the UK. Diana has contributed to a large number of local and international publications. Her pet topic is the secrets of saving money.

Read more by Diana Clement

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