Understanding the excess linked to your insurance

When signing up for short-term insurance products, one of the first aspects to consider is whether or not you have to pay an excess when submitting a valid claim. Excess is the first amount clients have to pay when claiming from their policies in the event of an incident.

Marius Neethling, personal lines underwriting manager at Santam, says: “If you are using short-term insurance products, it’s important to evaluate your lifestyle when deciding if you want to pay an excess or not. High-risk profile clients are often prepared to pay higher premiums with no excess due to the frequency of their claims while low-risk clients are prepared to increase their excess as the likelihood of them claiming is a lot lower and they will benefit from paying lower monthly premiums”.

As insurance is comprised of the contributions of many to one pool of funds to pay the claims of a few, excess helps deter multiple claims on small incidents. In this way, people are encouraged to claim from their insurance policy to cover financial loss in a significant event.

That said, insurance companies have found that some people get into the habit of claiming for very small incidents. To prevent multiple small claims, insurance companies advise to rather use insurance policies in the event of a significant financial loss.

Additionally, says Neethling, clients pay an excess for two reasons: firstly, to eliminate small value claims and the administrative cost involved when processing a claim, and, second, to make the client co-responsible to ensure they manage their insurance portfolio effectively.

In the case of vehicle insurance, the reality in South Africa is that 70% of cars on the road are not insured. So, if you find yourself in an unfortunate situation where someone without an insurance policy has driven into you, your insurance company will not be able to recover the money or excess from the other party as they don’t have insurance and also cannot afford paying for your damage themselves.

Drivers should also keep in mind that the excess on your policy is also linked to your age and the length of time you’ve had your drivers’ license. Neethling says additional access may apply if a client has had their driver’s license for less than two years. “New drivers and drivers under the age of 25 should examine the insurance quote to look at the excess structure because there could be more than one excess,” he adds.

Some insurance companies will also apply additional excess if a vehicle is stolen. This could be calculated at a percentage of the value of the vehicle. Santam, however, normally does not apply additional excess for theft and works on a flat excess structure.

While paying a lower premium each month is great, paying a little extra to buy down your excess or to have zero excess could help if you do find yourself in a tight financial situation when needing to claim. Santam offers a zero excess benefit for all clients 55 years or older, irrespective of employment status.

“Doing insurance good and proper means giving clients peace of mind in the event of an accident,” says Neethling.