Many insurance policyholders are confused about the concept of excess and may have questions such as "why would I pay more when I am already insured?"
The simple answer to that all encompassing question is that excess is the 'first payable amount' that is paid when you claim for an accident and your car needs repairs. The insurer will then pay out the remaining amount.
The Three Different Types of Excess
- Basic Excess - The minimum amount that you are obligated to pay in when you claim as specified in your insurance policy.
- Voluntary Excess - This is an additional amount that you agree to pay on top of your fixed excess. By increasing your excess, you are lessening the financial risk of the insurer which, in turn, lowers your monthly premium.
- Age (Inexperienced Driver) Excess - When a driver is inexperienced or is under the age of 25 years old, they will naturally have a higher excess. This includes both the nominated drivers and the principal driver.
When Is It a Good Idea To Increase Excess?
Taking out more excess on your car insurance policy lowers your monthly premiums significantly. This is because with a high excess, a far lesser amount is at stake for the insurance company.
For example: If you have an excess of R3000 and your claim is R10 000, you will pay the first R3000 out of your own pocket and the insurance provider pays the rest.
If your car is written off, your excess is taken off the final claim payment.
It is a good idea to increase your excess if you are looking to save more on your insurance premium every month. This can help when you are on a budget or have recently experienced budget constraints.
In the event of an accident, assess the difference between your claim and your basic excess. It is also vital to assess the impact a claim may have on your 'Claim Free Period' benefit and future premiums.
: Should you choose to increase your excess in an attempt to lower your monthly premiums, try to still put aside a certain amount a month, over an above your premium payment. This is called 'self-insuring'
and can eventually build up to pay your excess, should you ever need to claim.
When Is It a Bad Idea To Increase Excess?
First consider the car you drive. If you are insuring an older or low-cost car, paying a higher excess may not be in your favour as you may end up paying more (in excess) than what the car is actually worth.
Excess was installed into insurance policies as a way to halt all fraudulent claims. This is because the recipient will always have to make the first payment before the insurance provider pays the rest.
Navigating the different types of excess can be a minefield and it is advised to sit down with a broker in order to discuss your personal insurance in every scenario and circumstance.
When taking out insurance, make sure you ask about what excess you are liable for and how your premiums will drop should you take out a higher excess.
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