By Funeka Ngewu, Executive Head of Claims and Procurement at Momentum Insure
Many South Africans only discover how an insurance excess works when they need to submit a claim. Whether it is a vehicle accident, storm damage or a burst geyser, being asked to pay an excess upfront often comes as an unwelcome surprise.
Understanding how excesses work before something goes wrong can help you choose the right cover, avoid unexpected costs and make the claims process far less stressful.
An excess is the portion of a claim that you agree to pay yourself before your insurer covers the remaining cost. Depending on your policy, the excess is either deducted from your settlement amount or paid directly to the repairer or service provider.
If the cost of the damage is less than your excess, your insurer will not make a payment because the full amount falls within the excess you agreed to pay.
The main reason insurers apply an excess is to help keep the cost of insurance affordable. Insurance is intended to protect you against major financial losses, not every small expense.
When policyholders contribute towards the cost of a claim, it helps manage the overall cost of claims across the insurance pool, which in turn helps keep premiums lower. It also encourages people to take reasonable care of their homes, vehicles and other insured belongings.
Types of excesses
Depending on your insurance policy, different types of excesses may apply:
Standard excess:
The fixed amount you need to pay when you make a claim as set by your insurer.
Voluntary excess:
An additional amount you choose to pay, over and above your standard excess, if you claim in exchange for a lower monthly premium.
Additional excess:
This may apply if the risk is higher, for example, if the driver is under 25 or has a license for under two years.
Imposed excess:
This may be added if you have a history of frequent claims for the same issue such as repeated burst pipe claims.
Insurers should clearly explain which excess applies to your policy when you take out cover, in which cases additional excesses could be appliable and inform you of changes to the excess during the life of your policy.
Depending on your insurer and the cover you choose, you may also be able to add an excess waiver. This allows you to pay a slightly higher premium in exchange for reducing or eliminating your standard excess when you claim.
Recovering an excess after a loss
If someone else was responsible for your loss, there is a chance you could get your excess back. Your insurer may attempt to recover the cost of the claim, including your excess, from the responsible third party or their insurer. If the recovery is successful, your excess will be refunded.
While insurers may not be able to pursue recovery in every case, they will let you know if this is not possible. Depending on the circumstances and with your insurer’s agreement, you may also be able to recover the excess directly from the responsible third party.
Understanding your cover makes all the difference
Insurance is there to protect you when life takes an unexpected turn, and understanding how your excess works is an important part of that protection. Before taking out or renewing your policy, ask what excesses apply, whether you have options to adjust them and what you can expect if you need to claim.
A few questions today can help prevent unexpected costs tomorrow and ensure you have the confidence that your cover will work as you expect when you need it most.
