Insurance: Fed up with excess?

Johannesburg - Following a car crash or theft, nothing tops that special feeling of finding out that - after years of dutifully paying monthly premiums - you have to fork out thousands more before your insurer will settle the claim.

Every year, thousands of South Africans get to enjoy the particular pleasure of paying an excess of R3 500 (on average in 2009) after a car accident or car theft.

Insurers charge these excess payments to deter clients from making minor claims and to transfer some of the risk for the loss on to the customer.

Virgin Money recently launched an insurance product, underwritten by Dial Direct Insurance, which does not require any excess payment when you claim.

There is, however, a "hurdle amount" of R5 000 on car bodywork. This means that if you claim for less than that amount, you have to cover the payment for repairs to the bodywork of your car yourself.

And when you're claiming for a windscreen or radio, an excess of up to R300 will apply, says Vinay Padayachee, managing director of Virgin Money SA.

However, when your car is stolen, no excess will be payable - while some insurers will charge up to 7.5% of the value of the car.

Padayachee says the excess-free policy is an attempt to overhaul the local insurance industry completely.

"Ultimately, the state of the insurance industry is not a happy one. The insurance sector is one of the most criticised industries in South Africa. There's choice, but very little difference when it comes to comparing policies."

Although Virgin claims that its offering is a first for the industry, insurers have been offering excess-free policies for pensioners for many years, says Elna Rudman, a Pretoria-based financial adviser who specialises in short-term insurance.

Also, excess waivers on vehicles are available from most insurers at an additional premium, she adds.

"Consumers should look at the premium charged - usually no excess or lower excesses can mean higher premiums."

Padayachee is, however, confident that Virgin's premiums are some of the best on the market, with their insurance offering stripped of "bells and whistles".

Clients do not get automatic roadside or legal assistance, but can add it to their policies at an extra cost.

How to be excess-wise

• Make sure you understand how much you will pay if you claim.

  An excess may be a percentage of the claim, but it may also depend on the value and type of vehicle.

  For example, a policy may have an excess of a maximum of 5% of that claim, with a minimum R5 000 payment for a low-valued vehicle of say R20 000.

  Rudman thinks a flat excess, as charged by insurers such as Mutual & Federal and Auto & General, is usually a better option than policies that charge a percentage (and a minimum amount). A flat excess means you know exactly how much you can expect to pay.

• Look out for cumulative excesses. Some insurers will charge additional excesses in the small print of policies, warns Cheryl Salzwedel, marketing director of Unicorn Risk Consultants in Gauteng.

  For example, some policies will charge you a bigger excess if the driver was under the age of 23 years or driving between the hours of 23:00 and 05:00.

  Always read the small print of your policy, says Salzwedel.

  Be careful that the policy is not issued on a named-driver basis as this will mean that the vehicle will only be covered while that named person is driving. Ensure that the "driver profile" on the policy is also valid - for example that it is relevant to the 18-year-old student who drives the car, and not the father who purchased the vehicle for him.

  Also take note of the security requirements such as alarms, immobilisers and tracking devices to ensure that your cover for theft and hijack will be valid. Some policies will not pay out if you insured it for private use, but you use it for your business as well.

  Rudman says you should also look carefully at cancellation clauses, administration fees or premium increases attached to the number of claims.

  "Always make sure of the integrity of your insurer, she adds. "That would be what you would have to rely on the day that a really serious claim arises."

  - Fin24.com