What you need to know about insurance claims and excess

When it comes to car insurance excess, a lot of us are stumped. What do we pay? When do we have to pay it? How can we avoid paying it?

Simply put, excess is the amount you elect to pay in order to self-insure, which you agree to when you take out an insurance policy.

It’s what you agree to pay before the insurance company settles the rest of your claim. It’s the “first amount payable”, in insurance-speak.

If you’re a risk-averse kind of person, you can opt to pay higher premiums rather than have to pay excess. That means that you opt to take on no portion of the risk whatsoever — but that does mean you pay more monthly to insure. By and large, though, excess attempts to discourage fraud because if you have to make the first payment yourself you’re unlikely to try to make a fraudulent claim. That’s why excess exists.

But there are so many different excesses that taking out an insurance policy can be a minefield — you need to sit down with your broker and discuss every possible permutation. Read your policy very carefully and ask what excesses you can be liable for. This is the advice of Delouise Marais, Gauteng’s regional manager of MUA Insurance Acceptances, who says that consumers are often confused by what they’re liable for, how much they may have to pay and what cumulative excess is.

If you think you won’t have to pay the excess on your insurance policy if you’re involved in a no-fault accident, well, you’re wrong. The guilty party isn’t required to pay the excess on both vehicles — it’s the policyholder that is responsible for the excess payable on his or her own policy.

However, you can try to recover the money from the other party as they have to reimburse that excess.

It’s therefore critical that you track the status of your claim to be sure your insurer refunds you that excess and reinstates your bonus or no-claims discount, once the money’s been recovered from the other party’s insurance policy.

But it’s not always that straightforward. Marais points out that because only about 35% of the cars on our roads are insured, if you’re involved in an accident with an uninsured vehicle, you’ll have to pay the excess but it’s unlikely you’ll recover the cost of the damages.

This means you could lose your no-claims discount.

More than one excess can be levied
Marais points out that there is more than one excess that can be levied on an insurance claim. Most insurance companies charge a higher or additional excess if the driver is younger than a certain age, as a result of the high frequency of accidents in this age bracket or if the insured has a bad claims history.

She says that while these are common excesses that many people understand, there are additional excesses payable that few people are aware of. Most policies may include a theft excess, which means that the consumer is responsible for paying an additional excess when their car is stolen or hijacked.

“Another important point for consumers to be aware of is the introduction of the time of accident excess. Nowadays, some insurers also charge a higher excess if an accident takes place at a certain time — say at night between midnight and 5am,” says Marais.

You can choose to have a waiver on a policy whereby the basic excess is deleted, but this is likely to result in an increase in the premium paid. This excess waiver is often only applicable to the basis excess, though, and you could still find yourself responsible for any additional excess noted on the policy.

What about compulsory third-party insurance?
If compulsory third-party insurance is introduced, of course, then the math will work in the consumer’s favour. Christelle Fourie, MD of MUA, says a bigger pool of premium contributions means lower premiums and excess passed on to consumers because the losses of the few will be compensated by the contributions of the many. It’s probable that the maximum amount paid out for repairs would be capped, says Fourie, but at least the guilty party will still carry their own costs.

What to watch out for

  • If you’re in a high-risk category (if you’re a 25-year-old male, say), your excess could be significant — maybe more than the value of the claim for a small accident. Why claim if your excess is more than the value of the part that needs replacing or repainting?
  • Even a small claim will affect your no-claim bonus, so consider whether the claim is really worth it or not. A no-claims record of three or more years means that you will have the benefit of lower rates.
  • Consider what type of cover you want. Comprehensive cover will obviously cost more than just third-party. Shop around, compare quotes and find out what’s right for you.

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