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Excess refers to a fixed amount that you have to pay if you make a Car Insurance claim. If, for example, your basic excess is R3 000 and the damages to your vehicle amount to R40 000, you will have to pay the first R3 000 and your insurance provider will pay the balance of the claim, i.e., the R37 000.
Ever looked at an insurance quote and wondered, 'What’s with this excess thing?' Well, never fear, hippo.co.za is here to demystify car insurance excess and show you how you can balance it with your premiums to make sure your ride stays protected without breaking the bank.
You’ve bought yourself a brand-spanking-new car. To keep it safe on the road and save yourself any financial headaches if anything goes wrong you’ve decided to take out a car insurance policy.
As you’re going through the paperwork, though, one word catches your eye: 'excess'. Mainly because it’s followed by a number that’s quite a bit bigger than your monthly premium payments.
Excess, whether it’s for your car insurance or other policies, is the amount of money that you agree to pay out of your own pocket when you make a claim. You need to give your insurer this amount before they'll pay out, or you’ll need to pay it before collecting your car when repairs are complete.
The share of the bill that you’re responsible for paying to repair or replace your car if it gets damaged, destroyed, or stolen. If one of these scenarios happens, the insurer will pay out, minus the excess due.
In South Africa, you usually get three types of excess:
Compulsory excess: This is the minimum amount that you’ll have to pay when you make a claim on your insurance policy. It’s set by your insurer.
Voluntary excess: When negotiating the terms of your insurance policy, you can choose to pay in more than the compulsory excess amount-this is called the voluntary excess. If you’re wondering why someone would want to pay a higher excess, it’s usually because this gives them a break on their monthly premiums, making them lower.
Additional excess: This is an additional amount that you might have to pay depending on the circumstances around your claim. For example, if you're under 25 years old, if you've had the insurance policy for less than six months, if you have an accident in the wee hours of the morning, if someone other than the main driver was driving the car, and more-these are just some of them.
There’s also a fourth option, although it’s not nearly as common as the other three. That’s 'no excess'.
This means that your insurance company will pay everything to repair or replace your wheels after an incident. And you won’t have to pay anything out of pocket. Having a car insurance policy without excess is kind of like having dessert without the calories-pretty sweet.
Although it seems like the sweetest deal, there is a catch: You’ll have to pay much higher monthly premiums for the benefit of no excess.
You might be thinking, 'Why do I have to chip in to repair or replace my vehicle when I’m already paying monthly insurance premiums?'
Good question! The answer is that excess serves a couple of important purposes in the insurance world.
First, it helps to keep everyone honest. Knowing you’re going to have to pay in to get a payout can be a deterrent for any dishonest policy holders who might be tempted to make a false claim to get their hands on some fast cash.
Excess payments also discourage drivers from submitting claims for every tiny scratch and dent. So your insurance company has to deal with less admin and doesn’t have to spend as much on processing those claims.
Besides discouraging fraudulent and frivolous claims, excess also helps to reduce claim costs for your insurer. Which keeps your monthly premiums at a level that works for your wallet. Which makes it a win-win for you and your insurer.
Finding the perfect balance between car insurance premiums and an excess amount is like learning to sokkie. It can be tough, but once you find the perfect partner and get into the rhythm, you can hit the dance floor (or road) with confidence.
You can think of excess and premiums as two ends of a seesaw. When one goes up, the other goes down.
Let’s say that you opt for a low excess when taking out your car insurance policy. You’reessentially telling your insurer that you’re not prepared to take a big financial hit when you claim.
To ensure that they’re still able to cover the cost of any repairs or replacement that might be necessary in the future, your insurer will increase your monthly premiums.
Perhaps you’re feeling a little more financially flush when you insure your car. Your savings account is looking healthy, so you decide that you’ll opt for a higher excess amount. In this case, your insurer will decrease your monthly premiums.
Of course, there are loads of things to consider when you’re figuring out how to balance your monthly premiums and excess payments.
The first and most obvious is your financial situation. While a higher excess will lower your monthly premiums, you’ll have to pay in quite a bit more when you make a claim. Soit’s important that you can cover this cost if it comes up.
On the flip side, higher premiums can put you under slightly more financial strain each month. They can add up significantly over time.
Higher premiums and low excess might also make it tempting to make frequent claims. Claiming often affects your risk profile and can lead to even higher premiums in the long run.
Here’s a quick rundown of the benefits and drawbacks of high premiums and high excess amounts:
| Pros | Cons | |
|---|---|---|
| Higher premiums | Lower upfront costs when claiming. | Higher costs over time. |
| Peace of mind that you’re financially protected. | Less opportunity to save your salary. | |
| Higher excess | Lower premiums. | Higher upfront costs when claiming. |
| Great for low-risk drivers. | Bigger financial burden when claiming. |
You’re standing at a crossroads of car insurance decisions, trying to figure out whether to take the ‘high excess’ or ‘high premiums’ path. Fortunately, hippo.co.za is here to guide you to the route that’s best for your lifestyle and your budget.
It might be tempting to choose high excess simply because it lowers your monthly premiums. But you’ll need to think carefully about whether you’ll be able to handle the larger upfront payment-without breaking the bank-when you need to make a claim.
If you’re confident that your savings can take the hit, then higher excess can work for you. But if you’re happy to foot a bigger monthly bill for the peace of mind that you won’t be out of pocket later on, higher premiums islikely the better choice.
Closely related to finances, risk tolerance is a big deal. If the idea of a hefty one-time payment during the claim process gives you sleepless nights, paying a bit more each month for extra peace of mind might be more fitting for you.
For those who are less risk averse, taking a bigger financial hit every once in a while in exchange for reducing their monthly costs could be the solution. Here, high excess would be the better choice.
How often you’re inclined to claim is an important factor to consider when deciding between higher excess or car insurance premiums.
Speed racers who are often involved in minor fender benders might be better served by opting for higher premiums. This structure would let them claim more often without having to fork out a substantial amount of cash each time.
For those who are less Max Verstappen and more Driving Miss Daisy, a higher excess would be more beneficial. You’ll have lower monthly premiums and probably more time to save up to cover the bigger excess amount on the off chance you do have to claim.
How much you use your car makes a big difference to how likely you are to claim. Which will impact your decision about high excess vs high premiums.
If your car is kept in the garage most of the time and only really sees the light of day for Sunday afternoon drives along the coast, high excess will likely be the best option. You’re using your car less and it’s locked up safely, so there’s far less risk that it will be damaged or get stolen.
For daily commuters or those who think that the best way to see the world is from the driving seat, a higher premium might be the better answer. That way, you don’t have to worry about the risk of having to make a big excess payment every time you hit the road.
You’ve got your car, you know which type of car insurance you’re going to get. Now all that’s left to do is figure out how you’re going to balance your premiums and excess.
We've got some top tips that can help you to save money while getting the coverage you need for peace of mind on the road.
Safe driving isn’t just a great habit; it can help to lower your excess.
Remember when you aced your driving test? Well, keeping that A-student attitude and following all of those K53 rules and regulations can reduce your chance of having an accident. That lowers your risk profile and can reduce the lump sum your insurer might want in case you claim.
In some cases, your insurer might give you a discount for having a clean driving record. In other words, if you’ve never been involved in an accident or have never made an insurance claim, you could be eligible for lower excess.
You can also sweeten the deal by completing an advanced or defensive driving course. Upping your skills shows insurers that you’re committed to being a safe driver. Something that they might reward with reduced excess requirements.
Keep a safe following distance, which is a 2 – 3 second space behind the vehicle in front of you.
Obey the rules of the road.
Avoid distractions while driving.
Keep your vehicle well maintained.
Drive with your lights on and no speeding in bad weather.
Annual policy reviews: Life changes and so do your insurance needs. Take a close look at your policy every year to make sure it still aligns with your life circumstances and driving habits.
Adjust your excess: When your financial situation or risk appetite changes, you might find that the excess you initially settled on doesn’t suit you any longer. When your situation changes, you might want lower excess and higher premiums, or vice versa.
Collect multiple quotes: Don’t settle for the first quote you get. Or simply accept any policy updates that your insurer sends you. Shopping around and getting quotes from different insurers each year can help to ensure you’regetting the best deal and saving for the things you love.
A lot goes into figuring out the type of car insurance excess structure that works best for you. Finding the sweet spot between the excess and monthly premiums is a stop on the road to financial peace of mind.
The best way to ensure that you’re getting a great deal that works for your wallet is to compare as many quotes as possible. With Hippo.co.za, you can get quotes from 10 of South Africa’s top insurers in under 2 minutes.