Insurance is a vital part of our financial security, providing peace of mind when unexpected events occur. However, there’s more to insurance than simply paying a premium. One aspect that often confuses policyholders is the concept of “excess.” Unless you have elected to pay an additional premium for an excess-free policy, you will almost always pay an excess when you claim from your insurer, regardless of whether it is your fault or not.
Here’s what you need to know about excesses:
What is an excess?
An excess is the uninsured portion of your loss or the amount of the claim that you must pay for. If the claimed amount is less than the excess, your insurer won’t make any payment.
Why do you pay an excess?
Insurers apply excesses to discourage small, frequent claims and to keep insurance affordable for everyone. By doing so, they ensure that insurance is there for significant losses that you can’t afford to cover yourself. Excesses help eliminate low-value claims with high administrative costs, which, in turn, keeps premiums lower for policyholders. Additionally, excesses serve as an incentive for policyholders to take responsibility for the safety and security of their belongings.
Different types of excesses
There are various types of excesses used by insurers and the extent to which they apply depends on your policy agreement. Here are some common types:
- Standard/basic excess: This is the insurer’s standard excess for your type of insurance.
- Voluntary excess: You may agree to carry this in addition to the standard excess to receive a discount on your premium.
- Additional excess: The insurer charges an additional excess when the policyholder is deemed to be high-risk i.e., They are under 25 years of age or they have had their licence for less than 2 years.
- Imposed excess: This is imposed due to factors like a history of claims, such as repeated claims for leaking pipes.
Can you waive an excess?
You can enquire with your insurer about waiving an excess, known as an “excess waiver.” Some insurers offer policies with no standard excess for a slightly higher premium. Understanding when you can eliminate or reduce an excess will help you make an informed decision when taking out insurance.
Recovery of the excess
If someone else is responsible for your loss, your insurer may recover the claim cost, including the excess you paid, from the party at fault or their insurer. If the insurer successfully recovers the full loss value, they will reimburse your excess. However, there is no obligation for the insurer to recover the excess.
What if your insurer doesn’t recover the excess?
If your insurer decides not to attempt recovery or is unsuccessful, they should inform you. In such cases, you can decide whether to pursue recovery yourself, with your insurer’s consent. Recovering your excess from the third party depends on several factors, including identifying the responsible party, admission of fault, witnesses, the third party’s insurance and their ability to pay.
Understanding third party excess is crucial for making informed decisions when purchasing insurance. Excesses are in place to keep insurance affordable and discourage small claims. Different types of excesses may apply to your policy, and you have the option to enquire about waiving them. Whether your insurer recovers the excess or not, being aware of your rights and options ensures you are well-prepared in the event of a claim. Make sure to read your policy carefully, ask questions and stay informed about the excesses in your insurance coverage.
Speak to your Indwe advisor to ensure your policy is up to date and adequately covers you in the event of a claim. For more information visit www.indwe.co.za or call 011 912 7300.
Indwe is an authorised Financial Services Provider FSP 3425
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