Insurance Excess, also known as a deductible, is a specific amount that you, as the policyholder, must pay out-of-pocket before your short-term insurance policy kicks in to cover the remaining costs. This concept is crucial for understanding how insurance works in South Africa.
How Excess Works in South Africa:
- Policy Purchase: When you purchase a short-term insurance policy, the excess amount is specified in the insurance documents. This amount varies depending on the insurer and the type of coverage.
- Claim Submission: If you experience a loss or damage that is covered under your insurance policy, you will need to submit a claim to your insurer.
- Excess Payment: Upon approval of your claim, you must pay the excess amount, which will be deducted from the total claim payout.
- Insurer's Payment: After you have paid the excess, the insurer will then pay the remaining claim amount.
Example:
Suppose you have a short-term car insurance policy with an excess of R5,000. If you are involved in an accident and the cost of repairs amounts to R20,000, you would pay the first R5,000 (excess), and the insurer would cover the remaining R15,000.
Types of Excess in South Africa:
- Compulsory Excess: This is a mandatory excess amount set by the insurer, which you must pay for every claim you submit.
- Voluntary Excess: As a policyholder, you can choose to increase your excess to lower your premium. This can be a beneficial strategy if you are able to manage higher out-of-pocket expenses.
- Fixed Excess: This is a predetermined amount that applies to all claims within the policy period, providing clarity and predictability for policyholders.
- Percentage Excess: In this case, the excess is calculated as a percentage of the total claim amount, often used for more expensive assets.
Benefits of Excess:
- Premium Reduction: Opting for a voluntary excess can lead to decreased insurance premiums, making your policy more affordable.
- Reduced Claims: Knowing that you will need to pay an excess amount may discourage you from submitting minor claims, helping keep your claims history cleaner and premiums lower.
- Increased Responsibility: The presence of an excess encourages policyholders to take greater responsibility for their assets and actions, reducing the overall risk for insurers.
Important Considerations:
- Excess Amount: Assess your financial situation and choose an excess amount that you can comfortably afford to pay if you need to make a claim.
- Claim Frequency: Look at your past claims history and adjust your excess amount accordingly to find the right balance between premium costs and out-of-pocket expenses.
- Policy Terms: Ensure you fully understand the terms and conditions of your policy regarding excess, including how it applies to different types of claims.
Excess plays a crucial role in South African short-term insurance policies, allowing policyholders to share the financial risk with their insurers. By understanding how excess operates and selecting an appropriate amount, you can optimise your insurance coverage while minimising unexpected expenses. This not only helps in your long-term financial planning but also promotes more responsible and mindful engagement with your insurance needs.
