Insurance excess is one of the most important aspects to understand when taking out cover in South Africa. It refers to the portion of any claim that you, as the policyholder, will need to pay before your insurer contributes. While it may seem like a technical detail, the excess amount you choose can have a significant impact on your monthly premiums and your out-of-pocket costs during a claim.
Key Takeaways
- Excess Is Your Share Of The Claim: When you file an insurance claim, the excess is the portion you must pay first before your insurer covers the remaining balance. If the total cost is less than your excess, you cover it entirely out of pocket.
- Higher Excess Means Lower Premiums: Opting for a higher excess can reduce your monthly premiums, but it increases your financial responsibility when a claim is made. A lower excess results in higher premiums, offering more financial cover upfront.
- Excess Terms Vary By Policy Type: Excess structures differ across insurers and policy types such as car, home, travel, and rental insurance. It’s important to review the specific excess conditions attached to your policy, including age-based or time-based additional excesses.
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What Exactly Is Excess?
When you take out an insurance policy, you will be required to select an excess amount as part of the agreement. This excess refers to the portion of a claim that you are personally responsible for paying, before your insurance company covers the remainder.
To illustrate, imagine you’ve agreed to an excess of R5,000 and you need to claim for a total loss valued at R100,000. Since the claim amount exceeds your excess, you would be liable for R5,000, while your insurer would pay the remaining R95,000.
However, if you accidentally damage your car with a shopping trolley and the resulting repair bill is R3,000, the cost would fall below your selected excess of R5,000. In such a case, you would need to cover the full R3,000 yourself, as the insurer would not be involved in the claim.
Why Do Insurers Include Excess Fees?
Excess payments are included in insurance policies for several practical reasons. One of the primary functions is to help insurers manage financial exposure by discouraging policyholders from submitting frequent, low-value claims. In the absence of an excess, insurers could be inundated with minor claims, which would likely lead to increased premiums across the board. The excess acts as a deterrent, encouraging claimants to only seek reimbursement for significant losses.
Another purpose is to help maintain more affordable premiums for all customers. By requiring policyholders to contribute a portion of the cost when a claim is made, insurers are able to reduce their own risk and operating costs. This shared cost structure helps insurers keep monthly premiums at more manageable levels.
Encouraging Caution and Responsible Behaviour
Excess fees can also promote more responsible conduct among drivers and policyholders. When individuals know they will need to pay a portion of the claim themselves, they may be more cautious behind the wheel or take greater care of their insured assets. This awareness can lead to a reduction in both the frequency and severity of claims.
Variation in Excess Structures Across Policies
Insurance excess amounts and rules are not standardised across all providers or policies. Most policies include a basic or standard excess, but insurers may also apply extra excesses depending on certain criteria. These additional excesses could apply in cases such as when a driver is below a certain age or lacks sufficient driving experience. In such cases, the total excess payable in the event of a claim could be significantly higher than the base amount.
Understanding Your Policy Terms
To avoid unexpected costs when submitting a claim, policyholders should take time to understand the full details of their excess structure. This includes reading through their policy documentation and clarifying any conditional excesses that may apply. Being familiar with the terms of the cover allows individuals to make better financial decisions and prepare for any out-of-pocket expenses that could arise during the claims process.
Different Types Of Excess
Standard Excess
This refers to a fixed sum of money that the policyholder is required to pay upfront when submitting a claim. The insurer will then cover the remaining balance of the claim. This is the most commonly applied form of excess across various insurance products and is typically included in standard policy agreements.
Standard Or Special Additional Excess
In motor insurance, there are cases where a modified excess may apply under certain conditions, which may either increase or decrease the amount from your initially selected excess. These adjustments are specified in detail within your policy schedule.
Common situations where this may apply include:
- If a claim is submitted within the first six months of the policy’s start date
- When the driver is younger than 25 years old or has held a licence for fewer than three years
- If the individual operating the vehicle during the incident is not the regular driver or their spouse
Percentage-Based Excess
Some insurance providers apply an excess that is calculated as a set percentage of the total claim amount, rather than using a fixed figure. This means the higher the claim value, the larger the excess the policyholder will need to contribute.
Zero-Rand Excess
Certain policies offer cover where no excess payment is required from the policyholder. In these cases, the insurer takes full responsibility for the financial loss or damage, without asking the customer to contribute anything towards the claim.
Excess In Different Types Of Insurance
Car Insurance
Car insurance in South Africa usually includes a standard excess, which is the amount the policyholder must pay when claiming. Some policies also allow for a voluntary excess, chosen by the customer. A higher voluntary excess often results in lower monthly premiums, though it increases the amount payable in the event of a claim.
Additional excesses may apply based on risk factors. These include drivers under 25, those with less than three years’ driving experience, or if a claim is made within the first six months of cover.
Some insurers calculate excess as a percentage of the claim rather than a fixed amount, meaning higher claims attract higher contributions. Zero-rand excess options are available in some policies, though they usually come with higher premiums.
Home And Contents Insurance
Home and contents insurance typically applies a fixed excess per claim, covering losses such as theft or fire. This excess may vary depending on the type of damage, with separate amounts often applying to specific incidents like broken windows or stolen items.
Policyholders may choose a higher voluntary excess in exchange for reduced premiums. It’s important to understand how this affects both your monthly cost and future claim payouts.
Travel Insurance
Travel insurance includes excess charges for claims related to medical emergencies, baggage losses, or cancellations. These may carry different excess amounts, depending on the section of the policy.
South African providers often offer an excess waiver as an add-on. This removes or reduces the excess required when claiming and is especially useful for frequent travellers.
Car Rental Excess Cover
When hiring a car in South Africa, rental agreements typically include a standard excess, payable if the vehicle is damaged or stolen. Instead of relying on the rental company’s waiver, many people opt for separate car hire excess insurance from third-party providers. This cover is often more affordable and protects against high excess costs.
How Excess Impacts Your Insurance Premium
The connection between insurance excess and monthly premium payments functions much like a balancing scale. When you increase your excess amount, your insurance premiums usually become more affordable.
This is because selecting a higher excess means you are agreeing to carry more of the financial risk in the event of a claim. In turn, the insurer assumes less risk, which justifies a reduction in the premium you are charged.
The trade-off, though, is that you would be required to pay a greater amount from your own funds before the insurer covers any damages, should an incident occur.
On the other hand, if your priority is having peace of mind about claim costs rather than saving on monthly fees, you may opt for a lower excess. Doing so provides more cover upfront, but you can expect to pay higher premiums each month in return.
Smart Budgeting for Claims and Choosing the Right Coverage
| Smart Budgeting for Claims and Choosing the Right Coverage | Details |
|---|---|
| Select Appropriate Cover | Assess the type of insurance cover that best matches your needs by taking into account the level of protection, excess amount, and monthly premium. Compare various providers to find a policy that offers good value for money. |
| Familiarise Yourself With The Policy Details | Go through your insurance documentation thoroughly to ensure you understand all the terms and conditions. Pay close attention to the excess payable, coverage limits, and any exclusions that may affect a future claim. |
| Prioritise Your Financial Commitments | Allocate funds first to essential expenses before spending on non-essentials. This approach can help you manage your money more effectively and ensure that you have funds available if you need to make an insurance claim. |
| Create An Emergency Savings Buffer | Aim to put aside a portion of your income each month to gradually build an emergency fund. This money can be used to cover your excess or other unexpected costs that may occur. |
| Reassess Your Cover On A Regular Basis | It is worthwhile to review your insurance policy from time to time to ensure it still meets your needs. Comparing offers from other insurers may result in a more cost-effective deal. |
| Consult A Qualified Advisor If Unsure | If you are uncertain about how to manage your insurance or budget effectively, consider speaking to a registered financial advisor or insurance expert for tailored guidance. |
Conclusion
Understanding how insurance excess works in South Africa is essential for managing both your monthly premiums and potential out-of-pocket expenses. Whether you’re dealing with car, home, travel, or rental insurance, the structure and amount of excess you choose can significantly influence your financial commitments in the event of a claim. By reviewing your policy terms, comparing different excess options, and maintaining a realistic emergency fund, you can make informed decisions that align with your budget and risk tolerance. Careful planning allows you to balance affordability with adequate cover, ensuring you’re better prepared for unexpected events.
Frequently Asked Questions
What is insurance excess?
Insurance excess is the portion of a claim that you must pay yourself before your insurer covers the rest. It applies each time you make a claim and varies depending on your policy agreement.
Can I choose the amount of excess on my policy?
Yes, most insurers allow you to select a voluntary excess in addition to the standard one. Choosing a higher excess often results in lower monthly premiums, while a lower excess leads to higher premiums.
Will I always pay excess when I claim?
Not necessarily. If your claim amount is less than your excess, you will pay the full cost yourself and the insurer will not contribute. In some policies, you may also find zero-rand excess options, but these usually have higher premiums.
Why do insurers charge excess at all?
Excess helps discourage frequent small claims, reducing administrative costs and risk for insurers. It also allows for more affordable premiums for customers by ensuring claims are made only when necessary.
Do all types of insurance have excess?
Most insurance products in South Africa, including car, home, travel, and car rental insurance, include some form of excess. The amount and conditions vary by provider and policy type, so always read the terms carefully.
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