How Car Insurance Excess Works in South Africa
When you purchase your car insurance policy, your insurance provider will specify your excess amount. An excess can help you save on monthly premiums, but it can also cost you a lot if you’re in an accident. Each insurer will have its own rules about the excess, but some things remain predictable. Here is everything you need to know about how an excess works in the South African context.
What is an Excess?
The excess on your insurance policy is an amount you must pay if an insured event occurs that is covered by your policy and you’re claiming from your insurance for it. For example, if you’re in an accident, the excess is the first amount that must be paid by you to the insurance provider before cover for the loss and damage caused by the accident kicks in. Think of it as the uninsured portion of the damage and loss incurred.
Your excess can be a fixed amount or a percentage of the total claim. For example, if your excess is a fixed amount of R5,000, then when you claim from your insurance provider, you must pay R5,000. Whether the damage is R8,000 or R80,000, you must still pay R5,000. When your excess is a percentage, say 5%, then you would pay 5% of the claim. If your claim was R8,000, that would be R400, and if your claim was R80,000, that would be R4,000.
The above example shows how important your excess can be. In some cases, paying a percentage of the claim as an excess can be advantageous, if your claim is smaller. If your claim is large, however, the percentage could cost you more than a fixed excess would. When you get quotes online for car insurance, be sure to ask what the excess is and how it is determined before you purchase the policy.
How Does Additional Excess Work?
In South Africa, excess can sometimes be increased for certain reasons, or the policyholder may want to increase their excess to save on monthly premiums. You may need to pay a larger excess if you have been driving for less than two years, if you are younger than 25 years old, if your car doesn’t have a tracker, and if you aren’t the designated driver registered on the policy.
In some cases, there are other criteria that come into play when determining the excess. It’s best to ask the insurance provider with whom you want to purchase a policy how any additional excess would be calculated. A second type of additional excess is called voluntary excess and describes the situation where the insured wishes to pay a larger excess and save on monthly premiums. If you would like to increase your excess voluntarily, you can also do this by speaking to your insurance provider.
Do I Always Have to Pay the Excess?
If your policy includes an excess, and most South African car insurance policies will, then the short answer is yes. When you buy the policy, you sign an agreement that includes the agreed upon excess amount or percentage. When a claim is instituted, the excess is the first amount due from the insured. It doesn’t matter if you are responsible for the accident or not. The excess is agreed upfront, and you will need to pay it upfront when making any claim. Blame doesn’t play a role in payment of the excess, but if you are not responsible for the accident, your insurance provider can sometimes reclaim the amount.
Why Do Insurers Charge an Excess on Car Insurance?
In South Africa, most insurance providers offer fixed excesses, and the excess is designed to benefit the claimant and the insurance company. An excess amount acts as a deterrent to insurance fraud, saving the insurer countless hours and Rands. The insurer also benefits by giving their clients a financial reason not to institute small claims for minor scratches and repairs. With an excess, the insured benefits because they are not penalised for multiple claims with a higher premium. The insurance provider will also save on administration costs for small claims.
Can I Reclaim My Excess?
If your insurance provider wants to, they can institute a claim against the guilty party in an accident to recover their own costs. If they do this, they will often also reclaim your excess amount and pay it back to you. It’s important to note that, according to the Ombudsman, this is not the norm.
There are instances where the excess cannot be reclaimed, for example, if you do not have the personal details of the guilty party. If the guilty person has no income or assets, reclaiming will be difficult, and if they cannot be traced, you cannot recoup your loss from them. Sometimes the merits of the claim do not warrant a case, and sometimes the legal costs will become more than the actual claim amount.
If you opt for a larger excess and lower premiums, the risk remains that you will need to pay a larger amount upfront if you are in an accident. When deciding on your excess, think about how much you could afford to pay if you were in an accident. Balance that with how much you can afford to pay monthly. Discuss your excess in detail with your insurance provider before you purchase the policy, and it could save you a lot of effort and money in the long run.
DISCLAIMER: The information provided in this article is meant for informational purposes only and should not be construed as legal, medical, or financial advice. Facts stated in this article are correct at the time it was published.
Sources: iol; hippo; iol(2); insurance chat;