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We all want cheaper insurance. Though it is a necessity, most people tend to view their monthly premium as a grudge payment. Insurance companies across the board use the lure of cheaper premiums very effectively in marketing campaigns; in certain cases even offering to pay out an agreed sum of money should they not be able to provide you with a cheaper quote.
But what exactly is cheaper insurance? A cheap monthly premium is not the only consideration to keep in mind. An insurance policy is, in essence, a legal document, and the document in its entirety has to be reviewed thoroughly in order to ascertain the cost effectiveness of your insurance.
A starting point would be to confirm that the policy you select is fit for purpose and covers your insurable interest (for instance, if you are the only person driving your car, there is no reason to have a policy permitting more than one driver).
In addition, the following can be considered:
Excess
This is where most people lose with their vehicle insurance. The amount of excess you will pay in the eventuality of a claim is directly proportionate to the cost of your monthly premium. As an example (using very simplified figures):
Sandra pays a monthly premium of R100 towards comprehensively insuring her car, a late model sedan. She is covered for the full retail value of her vehicle should it be stolen. Her excess is 15% of the claim with a minimum payment of R5, 000.
Dan pays a monthly premium of R150 for the exact same vehicle. He is also covered for the full retail value of the vehicle, but his excess in such an eventuality is only 5% of the claim, minimum R2, 500.00.
Assuming that the model of car in question has a retail value of R100, 000.00, Sandra will only get a settlement of R85, 000.00, whilst Dan will get a payout of R95, 000.00.
In addition to the basic excess explained above, additional excesses should also be taken into consideration. The full description of excesses will always appear in your policy. You can use this schedule of excesses to help you determine whether your cheap car insurance is really as cheap as claimed.
Policy Wording and Inclusions/Exclusions
The way in which your policy is worded along with the specific inclusions, exclusions and conditions pertaining to your insured vehicle also plays a huge part in ascertaining how affordable your car insurance is.
Let’s continue with Sandra as an example and assume that she has lodged a claim for a stolen vehicle. Sandra bought her car with a factory-fitted alarm, but never installed a VESA-approved gear lock, which her policy stipulates as a security requirement. Because of this policy condition, her claim might be repudiated. This means that her “cheap insurance” potentially ended up amounting to “no insurance”.
Dan, for instance, might have installed an expensive sound system in his car, never realizing that additions such as those are excluded in his policy. He might have his claim settled for the retail amount of the vehicle minus the excess, but he will incur a loss with the sound system.
On the other hand, specific inclusions might make the insurance policy more worth-while.
Enticers (or Policy Sweeteners)
Policy sweeteners are terms and conditions in your policy with the specific purpose of making it more attractive.
An example of a policy sweetener might be that you will pay no excess (or greatly reduced excess) should you lodge a windscreen claim. Or that an extra driver can be added to your car insurance policy without affecting the monthly premium.
These are always worthwhile to consider when looking at getting the cheapest car insurance.
Obscure wording and complicated terminology tend to confuse us, often leaving us with only a partial understanding of the insurance policy we have taken out. It is essential that you as a policyholder always know exactly what you are covered for and under which circumstances the cover is valid.
Therefore, we have compiled a list of some of the buzzwords in the insurance industry and their meanings:
1. Underwriting
According to Wikipedia, Underwriting refers to the process that a large financial body such as a bank or an insurance company uses to assess the elligibility of a potential customer to receive their products.
It all started in 1871, with the Lloyd’s of London insurance market situated in the City of London. Financial bankers routinely offered to accept some of the risk on a specific venture (a good example being a sea voyage) in exchange for a monthly premium. This is the concept of insurance as we know it today in its purest form.
The bankers would literally write their names on the slips providing the risk information. Underwriting is not a term solely used by the insurance industry. In addition to Insurance Underwriting, one also gets Securities Underwriting, Bank Underwriting, Real Estate Underwriting, Forensic Underwriting and Sponsorship Underwriting.
2. Excess
It is the bane of any policyholder’s existence. We all know it and we all hate it. But knowing the different types of excesses you get and how they work is essential, as it can save you a lot of money. It is worth noting that excesses are sometimes referred to in insurance policies as “First Amounts Payable”.
Generally speaking, insurance excess can be subdivided into two categories: Flat Rate Excess and Conditional Excess.
Flat Rate Excess is pretty self-explanatory. It is a set rate charged to the claimant upon a claim being settled. It can either take the form of a flat rate amount, ie. R500.00 upon claiming for a new windscreen, or a percentage of the value of the claim.
When a percentage is called for, a minimum amount is usually stipulated as well. This would typically be worded as such: “10% of claim minimum R2, 500.00”. A percentage value is often used for higher-value claims.
Conditional excess only kicks in when certain conditions are being met. In the event of a vehicle accident, examples of conditional excesses that might be levied include the driver of the vehicle having their driver’s licence for less than 3 years or the vehicle licence being outdated.
In the event of a vehicle theft, conditional excesses may be levied if the vehicle did not possess the minimum security features stipulated in the policy schedule. Read your policy schedule carefully on this point, though, as some insurers reject the claim entirely if the vehicle security did not measure up to the minimum standards.
Flat-Rate Excess is routinely used for both basic excess (what you are going to pay anyway) as well as additional amounts payable (anything else you might need to pay). Conditional excess is mostly only used for additional amounts payable.
3. Limits of Indemnity
A limit of indemnity clause will usually be added to your policy if you have public liability cover. Most motor vehicle insurance policies come standard with public liability cover, to protect the insured against lawsuits from any bystanders harmed during an incident.
A limit of indemnity is the maximum amount that an insurer is willing to pay out on one claim, and usually within one policy year. If the limit of indemnity is described as being an aggregate limit, it means that the amount stipulated is what is payable over all claims in a policy year.
The average limit of indemnity for public liability cover in South Africa is around R2 million.
It is vital to know these terms. If worst comes to the worst and a claim needs to be filed, you want to feel informed and knowledgeable about everything involved in the process. Knowing these terms will also give you the opportunity to go through your existing policy and potentially negotiate different policy terms with your insurer should you not be happy with the current state of things.
When it comes to Motor Vehicle Accident, car insurance Claims And Excess, most of us are clueless. Do you know what you pay? When do you need to pay it? And How can you avoid it?
Excess is the amount you pay when you claim from your insurance company, When you take out an insurance policy you determine the excess amount.
When you claim from your motor vehicle insurance company you agree to pay before the insurance company settles the rest of your claim. This is the “first amount payable”.
If you’re a risk-averse kind of person, you can opt to pay higher premiums rather than have to pay excess. That means that you opt to take on no portion of the risk whatsoever – but that does mean you pay more monthly to insure. By and large, though, excess attempts to discourage fraud because if you have to make the first payment yourself you’re unlikely to try to make a fraudulent claim. That’s why excess exists.
But there are so many different excesses that taking out an insurance policy can be a minefield — you need to sit down with your broker and discuss every possible permutation. Read your policy very carefully and ask what excesses you can be liable for. This is the advice of Delouise Marais, Gauteng’s regional manager of MUA Insurance Acceptances, who says that consumers are often confused by what they’re liable for, how much they may have to pay and what cumulative excess is.
If you think you won’t have to pay the excess on your insurance policy if you’re involved in a no-fault accident, well, you’re wrong. The guilty party isn’t required to pay the excess on both vehicles — it’s the policyholder that is responsible for the excess payable on his or her own policy.
However, you can try to recover the money from the other party as they have to reimburse that excess.
It’s therefore critical that you track the status of your claim to be sure your insurer refunds you that excess and reinstates your bonus or no-claims discount, once the money’s been recovered from the other party’s insurance policy.
But it’s not always that straightforward. Marais points out that because only about 35% of the cars on our roads are insured, if you’re involved in an accident with an uninsured vehicle, you’ll have to pay the excess but it’s unlikely you’ll recover the cost of the damages.
This means you could lose your no-claims discount.
More than one excess can be levied
Marais points out that there is more than one excess that can be levied on an insurance claim. Most insurance companies charge a higher or additional excess if the driver is younger than a certain age, as a result of the high frequency of accidents in this age bracket or if the insured has a bad claims history.
She says that while these are common excesses that many people understand, there are additional excesses payable that few people are aware of. Most policies may include a theft excess, which means that the consumer is responsible for paying an additional excess when their car is stolen or hijacked.
“Another important point for consumers to be aware of is the introduction of the time of accident excess. Nowadays, some insurers also charge a higher excess if an accident takes place at a certain time — say at night between midnight and 5am,” says Marais.
You can choose to have a waiver on a policy whereby the basic excess is deleted, but this is likely to result in an increase in the premium paid. This excess waiver is often only applicable to the basis excess, though, and you could still find yourself responsible for any additional excess noted on the policy.
What about compulsory third-party insurance?
If compulsory third-party insurance is introduced, of course, then the math will work in the consumer’s favour. Christelle Fourie, MD of MUA, says a bigger pool of premium contributions means lower premiums and excess passed on to consumers because the losses of the few will be compensated by the contributions of the many. It’s probable that the maximum amount paid out for repairs would be capped, says Fourie, but at least the guilty party will still carry their own costs.
What to watch out for:
If you’re in a high-risk category (if you’re a 25-year-old male, say), your excess could be significant — maybe more than the value of the claim for a small accident. Why claim if your excess is more than the value of the part that needs replacing or repainting?
Even a small claim will affect your no-claim bonus, so consider whether the claim is really worth it or not. A no-claims record of three or more years means that you will have the benefit of lower rates.
Consider what type of cover you want. Comprehensive cover will obviously cost more than just third-party. Shop around, compare quotes and find out what’s right for you.
