Aug 28, 2024 Keletso Mpisane, Blink by MiWay
Understanding excess - how to avoid stress and pain when it comes time to claim
Many first-time car buyers spend weeks or months crunching numbers to make sure they can afford their dream car. Once monthly premiums, car installments and petrol costs have been factored in, excess amounts are often an afterthought or not even a thought at all.
“Excess is an amount that policyholders need to pay towards a claim before insurers take care of the remaining balance,” says Keletso Mpisane, Head of Blink by MiWay. Insurance terminology can be a confusing and overwhelming world, if not well understood. To prevent forehead stress wrinkles, let's break down all you need to know about excess and why it exists.
Why an excess applies - Let’s say you just had your car broken into while shopping - an unfortunate reality too many of us have experienced. The first thing you should do is record evidence of the crime, alert your insurer and open a case at the nearest police station. Your provider will begin processing your claim once you have given them the necessary information, you will be reminded that excess needs to be paid. If you selected R5 000 excess when buying insurance, and the damage to your car costs R30 000 you will need to first pay the R5 000, and your insurer will provide the remaining R25 000.
The insurance head reminds us that “this small fraction of the overall claim acts as a motivator for you to be responsible for your valuables. It prevents frivolous claims, ensuring that providers remain in a good position to pay out claims for those who need cover.”
How should I pick my excess? - A good approach for deciding what your excess should be is to ask yourself how much money you are willing to part with if you had to make a claim tomorrow. The higher your excess translates to lower your monthly payments so it can be tempting to accept a high excess amount in return for lower premiums.
“As human beings we are bad at gauging how bad things could get in future, so we sometimes fall into a trap of believing we won’t need to claim. Taking on high an excess in order to pay lower premiums can hurt our pockets more in the future,” cautions Mpisane. It is good to remember that an excess will still be payable even in cases where the cause for a claim is not your fault. The best way to avoid pain is to factor the excess amount into your monthly budget.
What are the different kinds of excess? - While an insurer’s legal department will attempt to recover excess from third parties in cases where the cause of an accident is not yours, there is still a chance things do not pan out.
Knowing what kind of excess you have can help you prepare for these situations.
Different providers structure their excess differently. You can get:
• Fixed excess. As the name suggests, your excess is a predetermined amount you select when buying insurance. It stays the same no matter the claim amount.
• Proportionate excess. Here your excess is a percentage of your claim, and the end cost will change depending on the size of the claim. If your car is stolen for example, and its value is determined to be R200 000, you’ll need to pay an excess of R20 000 if your proportionate excess is set at 10%. In some cases, insurers could deduct this amount from the cash payout you get from a claim.
• Additional excess fees. This refers to additional excess charges based on risk factors like if the person driving your car at the time of an accident was under 25 years old. It could be based on many different factors so it's important to stay prepared by knowing your policy.
“Not all insurance providers charge additional excess, and the reasons can vary depending on the kind of cover. Checking your policy wording regularly will help you stay ready,” advises Mpisane.
How can I manage my excess? - A good way to avoid being shocked or stressed by excess is to start a rainy-day fund. Look at your excess amount when buying insurance and break it down into a monthly savings goal. Placing this money in a short-term notice account can help you stay prepared for emergencies.
Mpisane’s concluding advice is to seek professional help if you feel financially overwhelmed. “There is no shame in seeking help to make an informed decision about your coverage, financial planners and insurance professionals are there to help.”
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