What is Fixed Car Insurance Excess?

The word excess is very often used whenever the topic of car insurance is discussed and it is important for you to understand what it is, how it affects your premium and what the different types of excess are.

What is Car Insurance Excess?

Excess is often called the First Amount Payable by the insured party; the Insurance Company takes liability for the balance of the insurance claim. As the insured is taking on responsibility for part of the claim – being the excess amount – it can be seen as a form of self-insurance.

Something important to take note of: Insurance excess is not a pro-rata payment but as the name says – the first amount payable. Let’s explain this by way of an example: Your excess is R1 000. You are involved in a minor accident and the repair quote is for R950. In this case you will have to pay the full amount and the insurance company will make no contribution to the claim. Remember, we mentioned that you should look at excess as a way of self-insurance.

Why do insurance companies have excess amounts?

The main reason why insurance companies have implemented excess payments is to discourage insured parties from making small claims. The administrative cost attached to processing a small claim makes it uneconomical and therefore unprofitable business. Insurance companies also hope that the implementation of excess amounts will force the insured to take more care in protecting their assets.

What is fixed and variable excess?

When your car insurance policy states that different amounts of excess will apply for different types of claims it is called variable excess. Sometimes it is also referred to as basic excess and should not be confused with fixed excess. In the case of variable excess the excess on window glass may be R500 while the excess on accident damage may be R2 000.

With variable excess you also have additional excess amounts that apply. Many insurance companies will charge an additional excess when the driver is younger than 25. Some companies also have additional excesses applicable should you be involved in an accident during the first six months after having taken out the policy.

Some insurance companies now offer fixed excess amounts. If you accept a fixed excess of R1 500, as an example, that amount will apply irrespective of the amount of your claim as well as the type of claim. The benefit of having a fixed excess is that there will be no nasty surprises when you make a claim in the form of additional excesses or varying amounts. The amount of a fixed excess offered to you will differ from one insurance company to the next and will also depend on other factors, such as the value of the car and your previous claims record.

Which option is best?

You will have to make your own choice; one option is not necessarily better than the next, it depends on your circumstances. If you drive a very expensive car where the spare parts alone cost a fortune, a fixed option may be the better choice for you. But, if you drive a reasonably old car you may find that you end up being your own insurer most of the time.

Remember that claiming on your car insurance policy will result in you losing your cash-back bonus, if your insurance company offers this benefit. If you have accepted a fixed excess of R2 000 and damage to your car amounts to R2 500 is may be in your best interest not to claim the R500 from your insurance company as you will lose your bonus in the process. Before accepting any big excess you need to make sure that you can afford it.

Higher excess can reduce your monthly premiums

Most insurance companies will also offer you the option of accepting a higher voluntary excess in return for lower monthly premiums. At the other end of the scale there are also insurance options available to cover your excess portion.

So many choices

It is great to have choices available to you; knowledge of any subject helps you to make an informed decision. Don’t be scared to ask for advice – insurance consultants are trained and licensed in terms of the FAIS act to inform you of all the benefits and features of insurance. Make sure that you only deal with accredited agents.