Buying and insuring written off vehicles at the right price

Gari Dombo

Insurers will generally not sell written off vehicles to the man in the street since once a client is paid out for the vehicle the rights to it transfer to the insurer who may dispose of the property as they see fit.

If a policy holder requests to keep a written-off vehicle, and if the salvage company agrees, the insurer may decide to settle cash plus salvage. That is, “the policy holder keeps the written off vehicle, while the insurer pays the difference between the salvage value and the undamaged price of the vehicle” says Gari Dombo, Managing Director, Alexander Forbes Insurance.

Alternatively, the insurer may agree to pay the policy holder out in full and then assist the policy holder to buy the wreck from the salvage company.

The important thing is to be aware that the insurer owns the write-off and policy holders must be prepared to pay for it. “Your insurer will then decide what the salvage is worth to them and whether your offer is worthwhile” says Dombo.

Sometimes a repairable vehicle is scrapped too soon for a policy holder’s liking. This can happen if the sum insured is low. A vehicle is usually considered uneconomical to repair if the repair will cost more than, say, 60 or 70% of the sum insured to repair. The exact percentage is usually stated in the policy.

In this case the owner may agree to have the vehicle repaired with cheaper parts, either second hand, or new parts not branded by the vehicle manufacturer. This could bring the cost of repair below the 60 or 70% threshold at which the insurer considers the vehicle uneconomical to repair.

If a consumer buys a car that has been scrapped and rebuilt, it will be registered as Code 3. Since vehicle agents will not deal in these vehicles and many finance houses will not finance them, the market value of a Code 3 vehicle is less than regular vehicles.

While some insurers will not insure Code 3 vehicles at all, if you do find an insurer prepared to cover a Code 3 vehicle, it is likely to be insured at 30% less than the current value of the same vehicle that has not been Code 3 registered.

Similarly, vehicles with South African Police Vehicle Identification Numbers (SAP VIN) are also valued at 30% less than regular vehicles. SAP VIN numbers are prefixed by AAPV. These numbers are attached by the police when the original VIN numbers have been defaced.

As such, when policy holders look to buy a used vehicle they should check for SAP VIN numbers and Code 3 registration – “to make sure that they don’t end up paying and then insuring a written off vehicle at its full undamaged price” warns Dombo.