South Africa’s growing contingent of gig workers is playing a risky game of chance when it comes to insuring their vehicles and equipment, cautions John Wessels, actuary and member of the Short-term Insurance Committee of the Actuarial Society of South Africa (ASSA).
The term “gig” refers to short-term work and applies to freelancers, independent contractors, and people running side hustles for extra income.
According to Wessels, gig workers often rely heavily on their personal vehicles and electronic devices, such as laptops, cameras, and sound equipment, to generate an income. Wedding photographers, for example, are likely to use their personal vehicles to transport themselves and their equipment to the wedding. Gig workers in the film industry are often hired with their own vehicles and camera equipment, while students delivering takeaways in the evening for additional income usually drive their own vehicles, whether a scooter or a car.
Yet, says Wessels, most of these gig workers insure their vehicles and equipment for personal use only, some out of ignorance, others because they hope that the cheapest version of personal insurance will do if something happens.
According to Wessels, short-term insurers will always charge more for business and commercial cover, because the risk is higher when the vehicle is used for more than just personal use.
“It may be tempting to sign up for personal cover only, believing that you are a good and responsible driver and in the hope that you will not be involved in an accident. But accidents are always unplanned and unexpected and usually happen when we can least afford them.”
He explains that short-term insurers (excluding niche insurers) typically offer three categories of vehicle insurance: personal, business, and commercial. Understanding the differences between the three categories is key to signing up for the short-term insurance cover most appropriate for your risk profile, advises Wessels.
- Personal cover applies when the vehicle is used mostly for private trips, such as shopping, social travel, dropping off children at school, and driving to and from a regular place of employment. Some short-term insurance companies will insure a vehicle under personal cover on personal use if it is used for business only occasionally.
- Business cover is required when the vehicle is used for private trips and for business-enabling trips, such as client meetings, photographing events, transporting your music equipment to festivals, getting to and from film sets, or delivering client documents.
- Commercial cover is required when the vehicle is used to generate income. If, for example, you work in the film industry and you are hired with your car, you will require commercial cover. Also, if you are delivering goods, including takeaways, or transporting people for a profit, you will require commercial insurance.
Disclosure is key
Wessels says not disclosing to a short-term insurer that you are using your car for business or commercial purposes is short-sighted and risky.
“Insurance companies charge different premiums for different types of use because the risk is different. Instead of charging the same premium regardless of the use of the vehicle, insurance companies charge lower premiums for personal use, which makes these premiums more competitive and affordable, and higher premiums for business use because of the higher risk.”
He explains that in the event of a claim, insurance companies will verify that the information the client provided when purchasing the policy was accurate.
“If, say, your car is stolen at the location of a film studio or music event with all your expensive music or photographic equipment inside it, you will have to explain why this equipment was in your car when reporting the theft and submitting a claim. If it becomes clear that you were planning on using this equipment to generate an income, the non-disclosure of business use of the vehicle may prejudice your claim.”
Wessels says the insurance company will investigate whether the vehicle was, in fact, used for business. If it finds the vehicle was consistently used to earn an income, the claim may be rejected.
Another example, according to Wessels, is someone using their car in the evenings to deliver takeaway orders. “If your car gets pranged while you are on the road, or even written off, and your car is full of pizza boxes and you are wearing a uniform, you will have a hard time claiming personal use, and your personal cover will not pay out.
“Since you were likely doing deliveries to supplement your finances, sitting with repayments for a car you can no longer use, and no money to buy a new one is not a good outcome,” adds Wessels.
He says although it might hurt initially to pay a higher premium for business or commercial cover, you will have the peace of mind that if something happens and you were not guilty of gross negligence, or illegal behaviour such as driving drunk, your repayments are covered, and you will be able to afford to buy another car.
Wessels explains if a short-term insurer paid all claims regardless of risk, the company would either have to charge everyone higher premiums or potentially go out of business.
“This is why insurers have different risk categories and rely on consumers to honestly disclose how they use their vehicles and other valuable items. Insurers have to be vigilant when processing claims to ensure that the damages being claimed for were categorised correctly and that the appropriate premiums were being paid.”
Useful add-ons
According to Wessels, commercial cover offers useful add-ons, particularly for gig workers, such as affordable liability insurance, business interruption insurance, and specified all-risk equipment cover.
“Liability insurance should be a key consideration for gig workers. It is usually very affordable and provides cover for unfortunate incidents in which a client’s property is accidentally damaged while you are working. Also, say you did a wedding shoot, and the camera was stolen before you were able to download the photos, liability cover would enable you to compensate your clients.”
Wessels says business interruption insurance is useful for gig workers who rely heavily on electronic equipment to earn an income.
“If your camera gear is stolen or damaged in an accident and you have to cancel a number of jobs as a result, business interruption insurance will ensure that you continue receiving an income while you source replacement equipment.”
Wessels reminds gig workers that business and commercial cover is a business expense, which can be offset against income, thereby reducing tax liability. “Therefore, before you take the decision to not take out business or commercial cover because of the cost, consider that a portion of the cost will be offset by the tax savings.”
Remember to include the cost of business and commercial insurance cover in your provisional tax calculations.
Choosing the right cover
Wessels says most mainstream short-term insurers offer personal, business, and commercial cover.
He offers the following guidelines for obtaining the appropriate cover:
- Personal and business cover is generally offered by the insurer’s personal lines division. In the discussion with the broker or the call-centre agent, provide a detailed overview of your vehicle usage. You will be advised of the most appropriate cover for your circumstances. This conversation will be recorded, and, by law, insurers must keep all recordings and make them available to the client upon request. If you disclosed that you sometimes use your car to transport equipment to a gig and you were sold personal cover, the insurer will have to honour future claims. However, if you did not disclose business use, the insurer is entitled to decline your claim.
- If you use your vehicle for deliveries, to transport people, hire it out to, say, film sets, or charge clients for its use, you will need commercial insurance, and it is best to call the commercial division of your insurer.
