Whether you are new to having car insurance, haven’t been insured before, or have had car insurance for ages, the ins and outs of what is covered and how your policy works can be overwhelming.
One of your main worries could be the amount you will have to pay when you put in a claim - your excess.
But what exactly is excess?
Bertus Visser, chief executive of distribution at PSG Insure, explains that excess is the financial obligation that a claimant has to pay before an insurance claim is honoured. The amount of excess that has to be paid is determined by a person’s risk profile.
For example, if your car is insured against accidental damage and you are in a minor accident that requires repairs costing R20 000, you will need to pay the prescribed excess fee in order to have your car fixed. In the South African market, this is usually from R2,500 to R10,000. Your insurance company will pay the balance.
Most insurance providers do have a compulsory excess, but it’s up to you to increase or decrease this amount according to what is affordable for you.
According to MiWay Blink, if you choose to pay a higher excess you will pay a lower monthly premium while, if you choose to pay a lower excess, your monthly premium will be higher.
Although you could be tempted to opt for a higher excess with lower monthly premiums, you may find yourself in a tough financial spot when you suddenly have to get your car repaired and need to pay a R10,000 excess fee first. Therefore, it is important to assess what excess amount you will be able to pay for an unexpected claim.
It is recommended that you have an emergency fund in a savings account that you can access when life throws you a curveball, such as needing to pay excess on your car insurance.
Another option is to choose a voluntary excess which allows you to set your own higher excess amount, so that they can lower their premium.
“To make this work for you, you’ll need to weigh up the pros and cons of each option with your adviser,” Visser says.
Remember that car insurance products with limited cover or a very high excess only cover you when things go horribly wrong but, for anything else, you will definitely need to pay in.