Common questions about insurance excesses…
Excess payments are among the most contentious aspects of car insurance. Ernest North, co-founder at NakedInsure, clears up common questions about insurance excesses and provides tips about checking whether you have the right policy for your risk exposure and your pocket.
What is an insurance excess?
The excess is an amount of money that will come out of your pocket when you claim against your car insurance. For example, if you have an approved claim of R100,000 and your excess is R5,000, you will pay R5,000 and the insurer will pay R95,000. If your excess is R5,000 and the cost to repair to damage to your car is less than R5,000, you will need to pay the full amount.
Why do insurers charge an excess?
The excess is a way for insurers to ensure that the cost of premiums remains affordable. Without an excess, insurers would need to process high volumes of small claims, which in turn would mean it would be necessary for them to charge higher premiums.
Why should you look out for in the fine print about excess payments?
Often, signing up for lower monthly premiums for car insurance will mean that you will need to pay a higher excess in the event you need to claim.
Most insurers are transparent about the basic excess, which may be up to 10% of the value of the damage to your car in an accident or of the total value of the car if it is stolen or written off. However, many insurers also impose extra excesses if any of the following are true:
Read the fine print carefully since a combination of these excess charges could add up to you paying a total excess of R40,000 or more. On the plus side, some policies have low or zero excesses for certain claims, such as hail damage or windscreen replacement.
Our philosophy at Naked is that insurance should reduce uncertainty, and not offer surprises when you try to claim. That’s why we don’t have any additional excesses, beyond a basic excess payment. You can also change your excess during our online quoting process to instantly see what the effect is on your premium. With Naked, the excess amount you choose is the maximum excess you will ever pay.
What happens if you were not at fault in an accident?
In theory, your insurer should aim to recover your excess from the driver at fault or his/her insurer and refund the money to you. In practice, 70% of cars are uninsured in South Africa, many of the drivers are unable to pay the damages, and the amounts are so small that it’s not worth pursuing legal action to recover the money. That means there’s a good chance you’ll still pay the excess when the accident is not your fault.
So how do I find the policy that meets my needs?
You should consider the following factors in your decision:
As long as you know what the excess is and can afford it, you do have the option of paying a lower premium and taking the risk of a higher excess.