The pitfalls of low premium-high excess insurance


Mutoda Mahamba | CEO | Solvency | mail me |

2020 is not coming up roses in the economy department and all indicators point to a tough year for consumers. In tough times, looking for ways to cut back, save, and make your money work harder for you, is always a good idea.

In doing so, don’t fall into the trap of cutting back on your essential insurance cover to the point that you will be left financially compromised if things go wrong and you need to claim.

One of the ways many people look to cut back on the cost of motor and household insurance is to opt for ‘lower-premium higher-excess’ cover.

Insurers have traditionally provided the option of increasing an excess payment – the first amount payable that you are liable for in the event of a claim – in return for lower monthly insurance premiums.

However, a high excess payment can leave you in dire financial straits if you have not provisioned for it – few consumers make this provision, and those cheaper premiums soon come back to bite them.

While the merits of accepting more of the risk (a higher excess) in return for lower premiums is sound practice, accepting such risk if you don’t have the financial means to manage the fallout is not, since a major loss could push you into extreme financial difficulty.

Our lifestyles, environment, and technology have evolved tremendously over the last few years, and so should our approach to financial planning.

There are better ways of insuring assets than has traditionally been the case. It should be every consumer’s resolution to look for new, innovative ways of making their money work harder for them and deliver better returns without undue risk.

Take full control of what you spend on insurance and savings, and then invest those savings in an interest-earning account in your name. The next time you consider increasing your excess to lower your premium, you might want to consider a solution that lets you invest as you increase your excess.



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