Every year, many South Africans turn 18 and along with this important life event, a vehicle may be purchased or handed down to the young adult as a means of transport when they obtain their driver's license. However, if the parents do not properly insure the car with the details of the actual driver, they could be in for a massive financial outlay if their child is involved in a motor vehicle accident.
This is according to Nazeer Hoosen, CEO of PPS Short-Term Insurance, a subsidiary of the PPS Group – the financial services provider focussed on graduate professionals, who states that the most common mistake parents make when insuring their child's car is failing to specify the child as the primary driver or as one of the drivers of a vehicle.
He explains that when the correct driver is not specified at the inception of the policy, or if the existing policy is not updated to include the primary driver in the event of the car being handed down from parent to child, the insurance risk is incorrectly underwritten. "In this instance, insurers could argue that they would not have accepted the risk at inception of the policy and they may reject the claim during claims stage due to misrepresentation of facts or non-disclosure."
This is why it is vital to ensure that when arranging the cover for the child's car that the main driver's details (i.e. the child) are given to the broker or insurer so that the premium is correctly calculated and that the policy reflects the correct risk details, says Hoosen. "The details should include the name, age and contact details for the main driver, the address where the vehicle is kept during the daytime and night-time, whether it is stored in a locked garage and any other security measures, e.g. vehicle tracking and alarm systems."
One of the reasons why parents sometimes neglect to name their child as the primary driver is because premiums for younger drivers are typically higher as the younger a driver the less experienced they are, he says. "They are generally more open to take risks and the lack of experience is more likely to be exposed to an accident. Once a driver has passed the initial period of driving for two to three years as a licensed driver, the risk decreases and possibly the premium too. When they are over 25 it decreases even further. In a nut shell, the claims frequency and severity is higher with young or inexperienced drivers."
One way to lower the premium of the policy for a younger driver is to take on risk by increasing the excess, he says. "In addition, the selection of vehicle is important to bear in mind. Imported cars and vehicles with high power to weight ratios attract higher premiums. This is why it is a good idea to stay away from high performance cars as a first car for a child."
Hoosen says it is actually not a problem that the car is insured in the parent's name, so long as full disclosures are made in terms of primary driver, age and risk details are disclosed at inception or when the risk changes. Most policies are not on a named driver basis and anyone may drive the vehicle with insured's permission, as long as they adhere to policy terms and conditions. The issue is insurers must be given the opportunity to rate and underwrite the risk using the primary drivers details."
In the event that the child has an accident and they are listed as a driver, the claims process would be dealt with in the same ways as normal claims, but perhaps with an additional excess, provided that the correct primary driver details were presented at inception, says Hoosen.
"Insuring a car is a process that everyone has to go through and the more effort placed on ensuring the new driver details have been fully disclosed the better the end result. It is always a good idea to send inexperienced drivers on an advanced driving course to boost their driving skills," concludes Hoosen.
PPS Short-Term Insurance is an authorised financial services provider