Whether you are thinking of buying a car or have signed the deal to buy a car, the next natural step is to look for insurance.
There are two big choices that you have to make when going through the car insurance process. One is choosing the type of insurance that you want, and the other is choosing an excess on your insurance.
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.
Lizo Mnguni, spokesperson for Old Mutual Insure said that when it comes to excess, the general rule is that a higher excess will slightly reduce your insurance premium. But the choice is yours to make.
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 the 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 coverage or a very high excess only cover you when things go horribly wrong, but for anything else, you will definitely need to pay in.
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