Insurance excess payments is one of the main reasons customers are unhappy at claim stage.
If you have vehicle insurance and have claimed, you will probably be all too familiar with the excess amount due by you when claiming.
If you haven’t been properly advised when taking out your insurance policy, this excess which you need to pay, comes as a great shock. In some cases it leaves customers feeling dissatisfied and even leads to the cancelling of a policy. I mean “Isn’t that the reason I took out the insurance so everything is covered by the insurance company?” Or is it?
Let’s take a closer look at what exactly is this excess and why are you liable to pay this amount when you make a claim.
Excess actually protects you
That’s where the excess comes in – by making you pay a certain portion of a claim upfront, an excess protects the larger fund. Excess amounts are most likely payable on all insurance policies except life policies.
If you have a small claim, like losing a side mirror and your excess is more than or most of the cost of replacing the mirror, it makes no sense for you to claim for the mirror, as you will be liable to pay for it anyway. This is an affordable expense for you, so you don’t need the insurance cover.
Excess payments keep your insurance premiums lower and they discourage fraud. Insurers need to protect themselves from fraudulent claims and excess payments are a good way to do this. A consumer is less likely to submit a false claim when he or she needs to pay an amount upfront.
Remember, your excess payment is not based on whether you’re the guilty party, or not. If you’re not using the services of a broker or an adviser when you make this decision, make sure you read the fine print in the policy contract so that there are no unpleasant surprises when you do claim.
If you’re in a high-risk age category (say, you’re a male in your 20s) your excess could be higher. Some insurers could also levy an additional excess over and above the basic amount when your car has been hijacked or stolen. Some insurers for example require you to pay excess when you’re involved in an accident after 23:00 at night.
These additional excesses are payable dependent on the circumstances at the time of incident and may or may not apply.
What is an excess?
An excess is a cash amount you are required to pay towards a claim, every time you claim against your insurance policy. An insurer may have many types of excesses that can apply in different situations or apply simultaneously.
Most insurers will allow you to increase your basic excess to reduce your premium. This is one of the most effective ways to save on your car insurance costs. However this also means that when you do make a claim, you will have to pay more towards it.
It’s easy to be carried away by the potential savings to bank on the hope that you will never have to make a claim. But you don’t want to be left out of pocket when something does go wrong. This makes it important to only select a level of excess you can afford.
There are essentially two type of excess, a standard/basic excess and additional/penalty excesses.
Basic/Standard Excess
This is the amount you agree to contribute towards your claim. It may apply by itself or with another type of excess. This excess amount is payable by you every time you make a claim against your policy. So yes, if you claim 10 times, then you will have to pay this basic excess amount each time you claim.
Additional/Penalty excess
Most insurers may have an excess payable upon special circumstances and these excess amounts are additional to the standard/basic excess.
Examples of some of these penalty/additional excesses are detailed below. This is certainly not a comprehensive listing, excesses specific to you will be detailed in your policy schedule and wording. Please take special note of this and make sure you understand what you will be liable for should you lodge a claim.
Incident Date Excess
Some insurers may apply an excess if you claim (for example) within 3 months of policy inception date. You may also be liable for an excess if you claim more than two times within the first 12 months of policy inception.
Age Excess
The age excess usually applies in addition to the basic excess if the driver is under the age of 25 and makes a claim. Sometimes insurers apply different excess amounts for drivers of different ages under 25 years as well.
Age; Unlisted driver excess
This is a type of age excess that applies when the driver is under 25 years of age and is not listed under the policy.
Age; Inexperienced driver excess
This applies if the driver is over the age of 25 but has held a drivers license for less than 2 years.
Did you know?
Your final excess amount is an accumulative total (i.e. the addition of your basic excess amount and any additional excess amounts payable). If your total claim amount is less than the total of your excess amount, you will have to settle the claim yourself. You may not be able to control additional excess amounts due as these are dependent on circumstances. However, you may choose your basic excess amount.
Some insures have the option of a zero basic excess. However in this instance, your premiums will be higher. Remember the higher the basic excess amount, the lower your monthly insurance premium. In contrast, the lower the basic excess amount the higher your monthly insurance premium.
Let’s break it down with some examples giving you an idea of the various types of excesses, when they can apply and how your total excess amount is calculated:-
Mr X is so excited; he passed his driver’s license test. Mr X purchases a vehicle he has been saving up for. Mr X didn’t realize he needed vehicle insurance and shops around for a premium that he can afford. The insurer he approaches makes him an offer he cannot refuse. The premiums are affordable and he even manages to fit in a tracking device which the insurance company said they needed him to do. He is happy and is enjoying his new ride.
Sadly whilst driving home from work one day, Mr X is knocked by a very frantic lady who was rushing somewhere. Mr X is so disappointed but thankful that no one was seriously injured. Mr X immediately reported the incident to the police station where the accident took place. He obtains a case number and promptly made a claim with his insurance company.
Example 1
Below is some of the basic information of Mr X’s policy as well as the cost to repair his vehicle.
Policy start date: 01/07/2020
Date of accident: 06/09/2020
Date license issued: 15/10/2019
Age of client: 24
Cost to repair vehicle: R 10 500
Basic excess per claim : R 6 500
Additional excesses
Driver is under age 25 : R 1 000
Incident is within 3 months of start date : R 1 500
Driver’s licence is less than two years old : R 3 500
Incident occurs outside of borders of South Africa : R 7 500
As per the details provided in our example, Mr X will be liable for all excess amounts highlighted which apply to his claim at the date the incident occurred.
Total excess due by Mr X
(R 6 500 + R 1 000 + R 1 500 + R 3 500) = R 12 500
Since the cost of the repairs is R 10 500, Mr X will be liable for the full cost to repair his vehicle as his total excess amount exceeds his claim amount.
Example 2
Below is some of the basic information of Mr X’s policy as well as the cost to repair his vehicle.
Policy start date: 01/12/2007
Date of accident: 06/09/2020
Date license issued: 15/10/2006
Age of client: 35
Cost to repair vehicle: R 10 500
Basic excess per claim : R 3 500
Additional excesses
Driver is under age 25 or who has licence for less than two years : R 4 000
Incident is a single vehicle accident : R 3 000
As per the details provided in our example, Mr X will be liable for all excess amounts highlighted which apply to his claim at the date the incident occurred.
Total excess due by Mr X = R 3 500
Since the cost of the repairs is R 10 500, Mr X will be liable for R 3 500 and the balance of R 7 000 will be paid by the insurance company.
Example 3
Below is some of the basic information of Mr X’s policy as well as the cost to repair his vehicle.
Policy start date: 01/12/2008
Date of accident: 06/09/2020
Date license issued: 15/10/2006
Age of client: 38
Cost to repair vehicle: R 35 000
Basic excess per claim : R 2 500
Additional excesses
Driver is under age 25 or who has licence for less than two years or is not the regular driver of the vehicle : R 4 500
Incident is outside of the border of South Africa : R 3 500
Incident is within 3 months of start date : R 3 500
As per the details provided in our example, Mr X will be liable for all excess amounts highlighted which apply to his claim at the date the incident occurred.
Total excess due by Mr X = R 2 500
Since the cost of the repairs is R 35 000, Mr X will be liable for R 2 500 and the balance of R 32 500 will be paid by the insurance company.
Most clients opt for a higher excess amount because of budget constraints. Make sure you review your excess amounts as time elapses so your excess amounts are affordable at claim stage. You can review and change your basic excess amount at any time whilst your policy is active.
Hope you found this piece informative and are better equipped to negotiate all your excess amounts on your current and new insurance policies.
If you need assistance with reviewing your policy, give us a call on 086 162 0000 or drop us an email at clientservices@xinixinsurance.co.za