Insurance Excess Payments Explained
- Types of insurance excess
- Compulsory excess
- Voluntary excess
- How does insurance excess work?
- Why is there an insurance excess?
When you take out any short-term insurance policy, whether it’s car, home, travel, or business insurance, there will be a compulsory access applied to it.
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This amount is the uninsured portion and the upfront amount you agree to pay yourself when you make an insurance claim.
Types of insurance excess
Compulsory access is standard and is the minimum amount your insurer requires, but you can choose to take out voluntary excess at a higher amount.
If you do opt for this, the voluntary excess will replace the standard excess.
The main reason you would want to take out voluntary excess is to reduce your monthly premiums.
There are a few key differences you should know before deciding between the two types of excesses:
Compulsory excess
- Is determined by the insurer
- Is non-negotiable
- Is the minimum amount required
- Is based on various factors such as your age, gender, address, claims history, etc.
Voluntary excess
- Is optional
- Is an additional amount to the compulsory level and therefore you’ll be paying a higher upfront payment
- Helps to lower your monthly insurance premiums
How does insurance excess work?
Here’s an example:
- You have an excess amount of R20,000 on your car insurance policy.
- You have a minor car accident that damages one of your door panels.
- The cost of replacing the door is R50,000.
- When claiming, you need to pay R20,000 upfront.
- The insurer then pays the balance of R30,000.
Why is there an insurance excess?
- Reduces fraud – Insurance policies apply excess to deter fraud and reduce the number false claims.
- Keeps insurance affordable – Many small claims tend to drive up the cost of insurance, making it generally less affordable for everyone. By enforcing excess payments, fewer people will keep claiming for minor damages and losses.
- Protects the larger fund – Without excess, policy holders may see their insurance policy as a fund they can dip into whenever they need. However, the benefit of insurance is actually a means to pay for serious damages when you aren’t able to pay for it yourself.
- Keeps premiums low – Doing away with excess will mean higher monthly premiums for you.
Conclusion
A final word on voluntary excess – while a higher excess amount helps to bring your premiums down, remember that this is a lump sum payment that comes out of your own pocket and must be paid upfront to get a claim started.
Before agreeing to a figure, assess your finances carefully to make sure you’ll manage the amount comfortably.
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