Home Insurance Basics: Premiums & Excess Explained

Taking out home insurance is a necessary but sometimes daunting process. Trying to figure out which premium works best while deciphering what an excess actually is, can feel overwhelming. 

With Dialdirect, taking out home insurance doesn’t have to feel that way. We have made the process less complicated and are here to guide you through every step of this critical financial decision. 

What is an insurance premium and how is it calculated?

The first question you will probably ask when taking out home insurance is how much will it cost? This monthly fee is known as your insurance premium, and the amount will depend upon a few factors that we will cover later. 

 How is an insurance premium paid?

The fee you pay to an insurance company, your insurance premium, can be paid monthly, every six months or annually, depending on what payment scheme you decide will work best for you. Most insurance companies offer different ways for you to pay your bill. This can be done online, through a direct debit order or credit card. 

For example, you can pay R600 a month in premiums for house insurance or R7200 once a year. In return, your home insurance coverage will protect you if anything happens to your home, such as an unexpected house fire or robbery. 

Your insurance premiums can differ according to the type of insurance you want and what you want your insurance plan to cover, as well as your risk factors.  

How are insurance premiums calculated?

 When giving you a home insurance quote, insurance companies will consider several different factors to determine your insurance premiums. These factors include your age, the type of coverage you need, your personal information such as your credit history, where you live and your insurance history. 

 Where you live will have an impact on your home insurance. For example, some areas can have a higher crime rate, and this could cause your home insurance premiums to go up.

 Your personal information can also have a bearing on what you pay. Things like your age, credit history, marital status, how many insurance claims you have made before, the type of job you have, and your hobbies can all impact your premiums. 

 If, for instance, you have an expensive hobby such as gaming, your premiums for household insurance might be higher. This is because the cost of replacing specialised gaming equipment will be a lot more than for someone who plays cards. 

 The type of cover you need will also influence your premiums. Insurance companies will give you a range of coverage options, from simpler plans which are cheaper but offer you less cover to those that are more comprehensive but heavier on your wallet.

What does home insurance excess mean?

Your insurance excess is the amount of money you agree to pay upfront if you claim. The excess will need to be paid by yourself. After this, your insurer will payout to repair the building or replace its contents. So, for example, if your prized collection of handbags are stolen, you will have to pay your insurer the excess before they will pay the costs of replacing the bags.

Insurance companies will often offer you a choice on how much excess you agree to pay. A compulsory excess is an amount you must pay, but the voluntary excess is what you decide when taking out your household insurance policy. A higher excess will mean you pay less on your monthly premiums. 

Why is there an excess on insurance policies? 

Fraudulent claims are less likely to be made if a payment needs to be made upfront. This not only protects insurance companies, but it also protects you because if a lot of people made a lot of false or small claims, insurance would be more expensive for everyone.

Insurance excess example: this is how it works

When taking out homeowners’ insurance cover, deciding on your excess amount is essential. While a higher excess might mean lower monthly premiums, you could be in for a horrible financial shock if something does happen and you need to make a claim. 

Take for example Lisa. She is a 40-year-old mom of two who has home insurance. When Lisa took out her home insurance policy, she was given two choices: the first was a compulsory excess of R3,500 with monthly premiums of R800 and the second was a voluntary excess of R10,000 with monthly premiums of R325. 

Lisa decided to take the option with the higher excess to keep her monthly premiums lower. But last week, there was a big storm that badly damaged Lisa’s roof. Lisa has submitted a claim, but she must pay the R10,000 to her insurance company before covering the costs of repairing the damage to her roof. The roof repairs will cost around R100,000 to fix.

Get the best home insurance in South Africa

To find out what type of excess you qualify for, contact Dialdirect today or get a home insurance quote online. We are here to help protect your most loved possessions, whatever they may be.