Car Insurance Excesses Could Cost You An Arm And A Leg

So often when deciding on which car and home insurance quote to go with we default straight to price - “Premium X is cheaper than Premium Y so that’s the deal I’m going with.” But have you considered what excess is payable at claim stage? Perhaps the reason your car and home insurance premium is so cheap is because you’ll have a monster excess at claim stage. Not an issue if you never claim, but what happens if you do?

The type of excess you choose should depend on your individual circumstances and the type of car you are driving.

If you are cruising around in an expensive jammie, a flat excess makes more sense, doesn’t it?

Who on earth wants to owe money on a R400,000 vehicle and then still have to pay a 5% excess if you ever claim? Can you imagine paying R20, 000 if your car is written off? Now perhaps for one or two of you reading this, you won’t break a sweat while writing out a cheque for R20 000, but for others it could literally break the bank – judging from the high numbers of expensive vehicles, with rusting dents, on the Gauteng highways, we could hazard a guess that even those “more well off” than us have been caught out at claim stage with excesses they simply couldn’t afford. Why else would you allow a luxury German car to rust away?

Driving a car worth more than a quarter of a million Rand? You really should be considering a flat excess structure on your policy.

But on the flip side, a 5% excess structure is particularly well-suited for those with lower value motor vehicles. Think about a guy with a R60 000 VW Polo. If the car is written off he ends up paying R3000 excess to the insurance company. Remember with older cars, if the cost of repairs exceeds 50% of the market value of the car, insurers tend to write the vehicle off. With newer vehicles, the ‘make or break’ point is closer to 70% (although these percentages are not set in stone).

It is worth noting that for high-end motor cars it often works out best to select a ‘waiver of excess’ option. For a small additional payment, each month, the insurer waives your excess. But don’t for a moment think this is a “get out of jail free” card. One too many claims, and the insurer with cancel this option.

Bottom line is that you need to run your own numbers and answer the following questions before deciding on which quote to go for:
  • If I go with a % based excess, what am I going to be in for if I suffer a full loss?
  • Can I really afford to take a financial hit like this?
  • Am I prepared to take on this risk for a cheaper premium?
  • Is the premium cheap enough to justify taking on the risk?
Just remember one thing, when it comes to insurance - there is no such thing as a dirt cheap insurance premium. Somewhere the insurer needs to balance the scales. Cheap premiums normally mean higher excesses. And that’s fine, provided you know what you are getting yourself into.

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The iHound