Cash Club: Cash vs car insurance

Should you cancel your car insurance to save some cash?

No.

I’ve heard of various tricks used by people to avoid paying for car insurance, like cancelling insurance as soon as they drive out of the dealership or reversing their debit orders. If you’re using these tricks to free up some cash, you clearly cannot afford that car.

In November 2018 I was involved in a car accident. I wasn’t hurt, but my poor car, Sqalo, wasn’t as lucky. Sqalo means ‘the beginning’, and I gave my 2007 VW Citi that name as it was my first car. It was worth around R40k – R50k and I owned it outright.

The accident involved me, another car and a building. To be honest, I am not sure who was the guilty party. I won’t get into the details, but for the sake of this blog, let’s assume it was my fault.

Since it was my fault, I was liable to pay for repairs to the other car, damage to the building I crashed into and my car. This is not a cheap situation to get yourself into. Fortunately for me, I had my car under comprehensive insurance with third party liability, impact alert, etc. Because of impact alert, my insurance company knew I was in an accident before I even got out of the car, and an approved tow truck was ready to tow my car away.

A few weeks later the insurance company declared my car a write-off and paid the insured amount less the excess fee. A few months later, I received a letter of demand from the company who owned the building I crashed into. I simply forwarded it to the insurance company. They also represented me in the case.

I can only imagine how stressful the entire situation would have been had I cancelled my insurance.

To be honest, I always thought car insurance is just to sort out the bank should you lose the car. To my surprise it is way more than that. It’s also peace of mind in the event of stress and panic.

The lesson I learned was, when paying insurance, you’re not only insuring your car, but you’re insuring a bunch of hypothetical cars and buildings. Basically, you’re insuring other people’s assets should you mess them up with your car (or worse, crash into a Ferrari).

Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.