August 27, 2020
The lockdown has been a challenging time for all South Africans. One way of dealing with some of these challenges is to find ways to save money every month. You may take a closer look at your monthly expenses like car insurance. Car insurance is made up of several components, one of which is usually an excess. An excess can affect the monthly premiums that you pay and more. Let's explore what car insurances excesses are all about below.
Car insurance excess is the out-of-pocket amount you must pay when making a claim with your insurer. For example, if your standard excess is R500 and your repair claim is R2000, that means you'll have to pay R500, while your insurance company pays the remaining R1500.
For simplification reasons, the types of excesses have been grouped into 2.
A basic excess may be a single excess amount that is payable should you claim from your insurer. This excess may stay the same, it may increase, or it may decrease over time depending on the insurance company.
Several types of excesses could exist in a single policy, or some insurers follow an approach that only includes certain types of excesses in their insurance policies. Some types of claims have separate excess amounts that could be payable when you claim. For example, damage to different parts of your vehicle could result in additional excess amounts that you may need to pay.
There may be several ‘layers’ of excesses that are added on top of the basic excess. For example, your ‘risk profile’ could affect your excess. The higher the risk associated with you as a driver of your car, the higher your final excess could be. Factors such as your age, where you live, your car and even your gender could affect your risk profile amongst other potential factors with some insurers.
Your car insurance policy could be assessed to be an additional risk to an insurer for a limited period when you first sign up with them. An insurance company may ask for an early excess payment when you claim if you have only been insured with the company for a short period to compensate for this risk. An early excess would usually fall away in a few months.
Let’s see how motorists could potentially save money each month on their car insurance.
Some South African motorists may wonder why premiums decrease when you choose to have a higher excess amount, and vice versa? This has to do with how the risk is distributed between you and your insurance company. Risk carries a financial cost. A higher excess means that you are taking on some of the overall financial risk should you be in a car accident. In this case, the insurance company carries a lower risk and need not charge you a higher premium to cover more risk. This way, you could save money on monthly premiums, but you carry more financial risk if you need to claim one day in the form of an excess payment.
Should you not want to have an excess, the insurance company would have to carry all of the financial risks, which will result in you getting charged a higher monthly premium to cover the full risk associated with insuring your car for car accidents and other risks.
Choose and pay for the cover you need at the price that you can afford. You may be able to save money each month by restructuring or changing your car insurance policy to have a higher excess or different type of excess. Perhaps put money aside every month if you choose to have a high excess and low monthly premium. A decreasing type excess can also be beneficial if you don't claim for a certain period.
Please remember to read your car insurance policy's fine print regarding excess payments before you sign up. Please don’t be surprised the first time you need to claim from your insurance company. Ideally, find the best balance between monthly premiums and potential excess payments that suits you.
Car insurance with low premiums to start with could also help you save money. Perhaps consider getting affordable car insurance with PMD, which comes with premiums that don’t increase and a reduce to zero* excess. T’s and C’s apply.
Please consult a certified financial adviser before buying car insurance. This article is for informational purposes only and does not constitute financial advice.