Understanding Excess: How to avoid stress and pain when it comes time to claim
Insurance terminology can be a confusing and to prevent forehead stress wrinkles, let's break down all you need to know about excess and why it exists.
27/08/2024
Many first-time car buyers spend weeks or
months crunching numbers to make sure they can
afford their dream car. Once monthly premiums,
car installments and petrol costs have been
factored in, excess amounts are often an
afterthought or not even a thought at all.
“Excess is an amount that policyholders need
to pay towards a claim before insurers take care
of the remaining balance,” says Keletso Mpisane,
Head of Blink by MiWay.
Insurance
terminology can be a confusing and overwhelming
world, if not well understood. To prevent
forehead stress wrinkles, let's break down all
you need to know about excess and why it exists.
Why an excess applies
Let’s say you
just had your car broken into while shopping -
an unfortunate reality too many of us have
experienced. The first thing you should do is
record evidence of the crime, alert your insurer
and open a case at the nearest police station.
Your provider will begin processing your
claim once you have given them the necessary
information, you will be reminded that excess
needs to be paid.
If you selected R5 000
excess when buying insurance, and the damage to
your car costs R30 000 you will need to first
pay the R5 000, and your insurer will provide
the remaining R25 000.
The insurance head
reminds us that “this small fraction of the
overall claim acts as a motivator for you to be
responsible for your valuables. It prevents
frivolous claims, ensuring that providers remain
in a good position to pay out claims for those
who need cover.”
How should I pick my excess?
A good approach for deciding what
your excess should be is to ask yourself how
much money you are willing to part with if you
had to make a claim tomorrow.
The higher
your excess translates to lower your monthly
payments so it can be tempting to accept a high
excess amount in return for lower premiums.
“As human beings we are bad at gauging how
bad things could get in future, so we sometimes
fall into a trap of believing we won’t need to
claim. Taking on high an excess in order to pay
lower premiums can hurt our pockets more in the
future,” cautions Mpisane.
It is good to
remember that an excess will still be payable
even in cases where the cause for a claim is not
your fault. The best way to avoid pain is to
factor the excess amount into your monthly
budget.
What are the different kinds of excess?
While an insurer’s legal
department will attempt to recover excess from
third parties in cases where the cause of an
accident is not yours, there is still a chance
things do not pan out.
Knowing what kind
of excess you have can help you prepare for
these situations.
Different providers
structure their excess differently. You can get:
- Fixed excess: As the name suggests, your excess is a predetermined amount you select when buying insurance. It stays the same no matter the claim amount.
- Proportionate excess: Here your excess is a percentage of your claim, and the end cost will change depending on the size of the claim. If your car is stolen for example, and its value is determined to be R200 000, you’ll need to pay an excess of R20 000 if your proportionate excess is set at 10%. In some cases, insurers could deduct this amount from the cash payout you get from a claim.
- Additional excess fees: This refers to additional excess charges based on risk factors like if the person driving your car at the time of an accident was under 25 years old. It could be based on many different factors so it's important to stay prepared by knowing your policy.
“Not all insurance providers charge additional excess, and the reasons can vary depending on the kind of cover. Checking your policy wording regularly will help you stay ready,” advises Mpisane.
How can I manage my excess?
A good way to avoid being
shocked or stressed by excess is to start a
rainy-day fund. Look at your excess amount when
buying insurance and break it down into a
monthly savings goal.
Placing this money
in a short-term notice account can help you stay
prepared for emergencies.
Mpisane’s
concluding advice is to seek professional help
if you feel financially overwhelmed. “There is
no shame in seeking help to make an informed
decision about your coverage, financial planners
and insurance professionals are there to help.”