Setting your motor vehicle excess higher or lower can have a significant impact on your monthly premium – but what exactly are the implications and what's the best way to make use of that balance to save you money in the long run?
Excess is the first amount payable by the client in the event of a claim or incident related to any of the insured perils under your insurance policy.
"Paying an excess also helps deter multiple claims on smaller incidents that could negatively impact your financial position as a result of increases to your monthly premium when claiming multiple times," says Lebogang Gaoaketse, the head of marketing and communications at WesBank Motor. "It is important to ensure that you select the correct cover that protects all your needs and possessions when taking out short-term insurance," he adds.
In most cases, accepting a higher excess payment on your vehicle insurance policy would mean that your monthly premium would be lower. "If you consider yourself to have a low-risk profile and claim infrequently, this could be an option to save a few hundred rands on the premium," says Gaoketse. "However, this option comes with some risk in the event of you having to make an insurance claim and cover the excess amount, so you need to be disciplined and put aside some of the monthly savings for such an incident."
As an example, looking at comparative quotes* for a 2019 VW Polo Vivo 1.0TSI, selecting cover from Budget Insurance with an excess of R11,800 indicates a premium of R788.39 per month. Reducing the excess to R6,800 raises the monthly premium to R912.73. The difference is R124.34 per month, or R1,492.08 per year, meaning that your savings over slightly longer than 3 years would cover the difference in excess.
A higher excess could also mean smaller dings are not covered, or bite you in the backside if your car is a total write-off after an accident.
"As an example, when you have a motor vehicle claim and the damage is repairable at a low amount, you might find yourself in a situation where the claim falls within the excess amount, resulting in your vehicle claim not being honoured by your insurer. If your excess is R10,000 and the cost of the vehicle damage is R5,000, your claim will be rejected because it 'falls within the excess'," he says.
On the other hand, damage to the vehicle may be so comprehensive that it doesn't make financial sense to repair it, and it could be declared a write-off. "In this case, the excess will be deducted from the final amount paid out to you directly, or the bank – depending on whether your car is paid off or not. If your vehicle is not paid off, this may leave you with a shortfall on your final settlement amount, should you not have the protection of shortfall cover," he says.
Take the guesswork out of selecting the vehicle insurance that is right for you by comparing car insurance quotes and excesses from the country's leading insurers with Hippo!
*Quotes are risk-profile dependent.
This article is for informational purposes only and should not be construed as financial, legal or medical advice.