The car insurance market can be a little confusing, particularly with all the technical lingo that’s thrown around. If you’re looking into vehicle insurance it’s important that you get the best deal for you, and that means understanding what all your options are. That’s why we’re here to tell you all you need to know about car insurance excesses, letting you make a more informed decision when shopping. So before you start getting insurance quotes, you might want to read this!
What is a Car Insurance Excess?
Let’s start with the very basics. When it comes to car insurance South Africa has plenty of options, but most policies work in the same way. You pay a monthly premium and if you have an accident then your car insurance company will pay for the damage. Right? But not quite. Your car insurance company doesn’t pay for all the damage, first you must pay an excess.
A car insurance excess (sometimes known as the uninsured portion of your policy) is basically an amount that you must pay towards the costs of fixing your car before your insurance company kicks in the rest of the amount. And the cost of that excess can vary a lot.
But Why Have an Excess?
There are a few reasons why an excess is part of a normal car insurance policy, and these benefit you as well as the car insurance companies:
The excess means that the insurance company has to pay out less money in an accident, since you will be covering some of the costs;
Because the insurance company will have to pay out less money in the event of an accident there’s less risk to them, which means they can charge you lower monthly premiums (in general, the larger your excess payment, the lower your monthly premiums will be);
It’s considered “fair” that the customer should pay some of the costs of an accident since they will then assume some of the risk, in the minds of the insurance company you are likely to drive more safely if you know that an accident will cost you money as well as costing the insurance company money.
The Kinds of Car Insurance Excess
So, for a variety of reasons your car insurance policy will contain an excess. But there are different kinds of excess depending on the car insurance policy that you choose. It’s up to you to know which kind of excess your policy requires. There are three kinds of basic car insurance excess:
Fixed Excess: if your policy has a fixed excess you will pay a fixed amount of money no matter how big or small your accident is, for example if your excess is R1,000 you will pay R1,000 whether your damage bill is R5,000 or R10,000;
Percentage Excess: if your policy has a percentage excess you pay a fixed percentage of the damage, meaning that your payment increases as the cost of the damage to your car increases, so if your excess is 10% and you have a R5,000 repair bill you will pay R500, but if that repair bill is R10,000 you will pay R1,000;
Buy Back Excess: a buy back excess is the least common kind of excess, and it basically gives you a choice. Your policy will essentially be either a fixed or percentage excess policy and if you have an accident you may choose to pay that fixed or percentage excess, however you also have the option of a “buy back,” which means you can pay less than your excess but in return you will have higher monthly premiums from now on.
Other Things that Effect Your Car Insurance Excess
Just as with your car insurance premiums there are things that will effect the fixed amount or percentage amount of your excess, including your age and the amount of driving experience you have. Other factors, such as whether you are driving or someone else is, or whether or not you have a tracking device fitted to your car (which lowers the risk of your car being stolen and disappearing) may also effect the amount of excess a car insurance company will decide to charge you.
But Why Is All This Important?
The reason that you need to understand all this is because you need to know exactly what you’re getting into. If you’re on a budget and looking for cheap car insurance then the cheapest car insurance you can find might seem tempting. But if you take a close look at that policy you’ll probably find that the reason the premiums are so low is because the excess amount is huge. You can easily check how an excess effects your premium payments by using a car insurance calculator and changing the excess amounts to see how premiums change.
Of course, this might not be a problem for you. You might be happy to trade off a large car insurance excess for a low monthly premium. But… What happens if you get into an accident? If you’re already on a budget, are you able to pay that huge excess? Because your car insurance company isn’t going to kick in the rest of the money for repairs until you’ve paid that excess.
Cheap premiums might sound good, but if you can’t afford to pay the large excess then your car insurance policy really isn’t going to work for you, since you won’t be getting a pay out. It may be worth paying a little more in premiums to get an excess that’s more affordable for you.
Additionally, you should think about whether you want a fixed or percentage based car insurance excess. As a general rule, percentage based excesses work better for lower value cars (since repair bills are unlikely to be very high), and fixed excesses work better for more expensive cars (because the chance of you getting expensive damage is higher and with a fixed excess you’ll pay the same amount no matter how expensive the damage is). But this is only a general rule, you’ll need to figure out what works best for you.
Car Insurance Excesses: The Bottom Line
It’s important that you understand the concept of car insurance excesses before shopping around for insurance quotes, since you don’t want to get into a situation where your car insurance won’t pay out because you can’t pay the excess. Plus, if you want to accurately compare quotes you need to know how that excess is effecting the cost of premiums. Don’t be tempted by cheap car insurance if you know you can’t pay that excess!
Main Subject: car insurance
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