Is a lower insurance premium worth it when the excess is much higher?

Insurance price comparisons can become misleading when you focus on the premium and overlook the excess. Looking at both figures together gives you a much better idea of what the policy could cost you.

R200 less on a monthly debit order can be welcome. A R10,000 excess after a smash, theft or burst pipe can change how cheap that policy looks.

Your premium is what you pay for the policy. An excess is the amount you contribute when an approved claim is settled. MiWay explains that choosing a higher excess may reduce the monthly premium and advises customers to choose an amount that can be paid as a lump sum when a claim is made.

What are you saving and what are you accepting?

Imagine two quotes with comparable cover. One costs R900 a month with a R5,000 excess, while another costs R700 with a R10,000 excess. The second quote saves R2,400 over 12 months, but the applicable excess is R5,000 higher if you make an approved claim.

The example does not predict whether you will claim. It shows why the debit order cannot be viewed separately from the amount you could owe after an insured event. A separate emergency cash buffer should enter the calculation. If the excess would send you to a credit card, overdraft or loan, the cheaper premium has transferred more of the immediate financial pressure back to you.

A lower premium reduces what leaves your account each month. A higher excess means you accept more of the cost when an approved claim is settled. Compare the annual saving with the cash you would have to find after a claim before deciding whether the exchange is worthwhile.

Read the excess before comparing the price

Two quotes can show similar cover and still treat excess differently. Your schedule and policy wording should show the applicable excess, while additional excesses can apply under some policies.

South Africa’s Policyholder Protection Rules require insurers to disclose the premium and significant exclusions or limitations. Required policy information must also be provided in writing within 30 days after inception if it was not supplied in writing earlier.

Motor insurance shows why claim preparation has a financial side as well. Evidence after a crash can support the information you give an insurer, although proof does not remove an excess that applies under the policy.

Decide from claim day, not debit-order day

The National Financial Ombud recommends checking more than premium price when comparing non-life insurance, including the level of cover and changes to excess amounts in updated policy documents.

If monthly cost is pushing you towards a higher excess, put both figures into a monthly money audit. Compare the annual premium saving with the excess difference, then check whether that amount is available without borrowing.

A higher excess can be reasonable when you can fund it and the premium reduction has a meaningful effect on your budget. A lower excess costs more each month, but leaves you responsible for a smaller contribution when an applicable claim is settled.

A lower premium is worth considering when you understand what you have traded for it and can afford the excess without creating a second financial problem. The monthly debit order should never hide the amount you may have to fund after a loss. Choose the figure you could live with on claim day, not merely the one that looks friendlier on payday.