What is Excess in Insurance?
20 NOVEMBER 2023
In short, the “excess” is the amount of your claim which is payable by you - the claimant. This is a Rand figure amount of your loss which your insurer has pre-agreed with you it will not be responsible for. But, what determines your excess, and how do you ensure that it’s a sum you can live with?Here we will take a deeper look at insurance excess across the board and also some of the insurance options that could be impacted by excess.
How Insurance Excess Works
Scenario: Consider an individual with motor vehicle insurance that has a set excess of R5000. In the unfortunate event of an accident, where the damage to the vehicle is evaluated at R30 000, the policyholder would be responsible for paying the excess amount before the insurance settles the claim to cover the remaining R25 000.
Types of Insurance Excess
- Standard Excess: Standard excess is a fixed amount established by the insurance company and is applicable to most claims. This type of excess is predetermined and outlined in the insurance policy. Policyholders should be aware of the standard excess associated with their coverage, as it can significantly impact the cost of a claim.
- Voluntary Excess: Some insurance policies, particularly motor insurance, offer the option of a voluntary excess. This allows policyholders to choose a higher excess amount in exchange for lower premium payments. It's a strategic choice that individuals can make based on their risk tolerance and financial capacity.
- Variable Excess: In certain cases, insurance policies may feature variable excess amounts depending on specific circumstances. For example, the excess for a theft claim might differ from that of an accident claim. Understanding these variations is crucial for policyholders to accurately gauge their financial responsibility in different scenarios.
Navigating Excess in South African Insurance Policies
- Motor Insurance: South Africa's gridlocked traffic centres and vehicle theft rate make motor insurance a necessity. Policyholders should carefully review the excess structure of their motor insurance policies, taking note of any standard, voluntary, or variable excess amounts. If you rarely travel with the vehicle you’re interested in insuring then selecting a higher excess with a lower monthly premium may be the better option.
- Home Insurance: Home insurance, covering both building and contents, may have varying excess amounts depending on the nature of the claim. For instance, the excess for a water damage claim might differ from that of a burglary claim. Policyholders should familiarise themselves with these distinctions to navigate the claims process effectively.
- Personal Insurance Lines: Personal lines of insurance, such as health insurance or personal liability insurance may also incorporate excess. It's crucial for policyholders to be aware of these terms to prevent unexpected financial surprises when making a claim. Gap cover is a type of short-term insurance which can be used to mitigate the equivalent of excess when it comes to health insurance.
Some popular personal insurance options
Customer Protection Insurance
Customer protection insurance is a safety net designed to shield individuals from financial turmoil caused by unforeseen events like disability, retrenchment, or death. Excess in customer protection insurance may manifest as a waiting period before coverage begins, or as a deductible amount, depending on the policy terms. For instance, a policy might stipulate a 30-day waiting period before benefits are payable or require the policyholder to cover an initial amount before the insurance company steps in.
Credit Card Protection Plans
Credit card protection plans offer coverage for credit card payments in the face of unexpected events such as disability or retrenchment. Excess in credit card protection plans can vary; it might be expressed as a fixed amount or a percentage of the outstanding balance.
Funeral plans provide financial support to families during emotionally challenging times. While funeral plans typically do not involve a traditional excess, policyholders should be aware of specific conditions that might affect the payout. For example, some policies may have waiting periods for certain causes of death or specific conditions related to the payout amount.
Critical Illness Plans
Critical illness plans offer financial assistance when individuals are diagnosed with severe health conditions. Although unlikely to accrue a traditional excess, you could have various waiting periods before coverage starts, or as an initial amount the policyholder must cover. For instance, a critical illness plan might have a waiting period of 90 days before benefits are payable, or it might specify that the policyholder is responsible for covering any costs above a certain level of expenses.
Income Protection Plans
Income protection plans act as a safety net for individuals facing income loss due to disability or illness. Although not necessarily an insurance that will have an excess amount, it is likely that you will have waiting periods as well as potential other payment timeframes.
Policyholders often receive options when it comes to the amount of excess they’re comfortable with. A lower excess means a higher monthly premium but perhaps, greater peace of mind. The reverse option is usually the better one when the asset you’re insuring is at a lower risk of being damaged. There’s little advantage to paying a high monthly premium on a vehicle which is almost always in your garage at home.
On the other hand, if an excess amount is higher than the total claim value, your insurer may not pay out at all, depending on the insurance type in question.