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Insurance: Why we pay excess

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City Press reader Sipho asks: “Why must I pay excess when I already pay my insurance premium every month?”

Budget Insurance replies: Hi Sipho. Very simply, an insurance excess is the first amount payable by a customer when an insurance claim is settled. The excess is put towards the cost of administrating a claim, with a portion of it being allocated to the repair or replacement costs.

For insurance companies, an excess is also an essential part of their own insurance and is put in place to discourage customers from making small or excessive and regular claims.

From the customer’s perspective, increasing your excess amount can lower your monthly insurance premium. While this can help you fit insurance into your monthly budget, it also means that you need to have extra funds available should you have to make a claim.

Excesses vary from customer to customer because each insurance situation is different.

A basic excess is worked out according to the type, value or use of the car you are insuring, or the value of household goods on the policy.

To fully understand exactly what your cover includes and what excess you may be liable for, it is vital to read the details in your insurance policy. They outline exactly what your cover entails, any exclusions, terms and requirements, and excesses payable in the event of a claim.

Friday was Insurance Awareness Day, and it’s the ideal opportunity to remind South Africans of the value of insurance.

There are an estimated 12 million cars on South African roads and, according to the AA, between 65% and 70% of them are uninsured.

This is an alarming statistic considering the number of accidents, hijackings and thefts that take place daily, placing these motorists at exceptional financial risk.

Tyrone Lowther, head of Budget Insurance, says: “A mind-set change is needed if insurance is to become a staple in people’s lives and a non-negotiable item in their budgets.

“If you put it into perspective, it could cost a couple of thousand, to tens and even hundreds of thousands of rands to replace home contents after a burglary, to repair your car after an accident or to replace it after a hijacking.

"Thinking about this versus the monthly car insurance instalment and the peace of mind that it affords you will help you see insurance in a different light.”

SEVEN REASONS TO BE INSURED:

1. Yes, it can happen to you – Scepticism is one of the many reasons people don’t take out insurance. Unfortunately, the statistics say otherwise – in 2016/17, 30 664 people were victims of hijackings, according to a Stats SA survey.

2. You can’t afford the alternative – For most of us, the cost of replacing a car immediately after an accident or theft would be unmanageable.

3. Avoid debt and protect your savings – Having to pay from your own pocket or take out a loan to repair or replace your car can set you back financially for years.

4. Third-party costs – Because there is usually another vehicle involved in an accident, you’re looking not just at the cost of repairing or replacing your own vehicle, but repairing or replacing theirs if the accident was your fault.

5. Reaction to legal action – If you’re in an accident and the other person decides they want to take legal action against you for the damages you caused, what recourse do you have? If you have insurance, your insurer will take over this responsibility.

6. Accidents happen – Without insurance, you’re pretty much on your own when it comes to figuring out which providers to use for towing or who to choose to fix your car, what they’ll charge you and if you can trust them.

7. Trusted suppliers and providers – Because insurers have a panel of approved suppliers and providers, you’ll have peace of mind when it comes to choosing and using them.

*In partnership with Budget Insurance



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