How do excess payments actually work?

Last updated on 13th December, 2017 at 10:21 am

Many of us, no matter how financially savvy we are, get confused when it comes to excess payments on our insurance policies.

In a nutshell, insurance excess is the amount that you agree to pay upfront when you take out an insurance policy. If you were in an accident, then an excess payment is the amount you first need to pay before the insurance company will pay the panel beater that fixes your car. Excess payments keep your insurance premiums lower and they discourage fraud. Insurers need to protect themselves from the scourge of fraudulent claims and excess payments are a good way to do this, because a consumer is less likely to submit a false claim when he or she needs to pay an amount upfront. However, most insurance companies in South Africa offer you the option to pay an increased premium (usually between 15% to 30% more) rather than having to pay excess on a claim. As a rule, insurance companies prefer that the insured person is liable for a standard excess payment of R3 500, for argument’s sake.

This means if your claim is below R3 500 you will be liable for the damage and you can’t claim it from your insurance policy. If you opted for a lower premium with excess and you’re involved in a motor vehicle accident that has not been your fault, you’re not indemnified from excess payments. Remember, your excess payment is not based on whether you’re the guilty party, or not. It’s wise to shop around for quotes before you decide on whether you’re prepared to pay a higher premium minus the excess, or lower premiums with excess payments.

If you’re not using the services of a broker or an adviser when you make this decision, make sure you read the fine print in the policy contract so that there are no unpleasant surprises when you do claim. If you’re in a high-risk age category (say, you’re a male in your 20s) your excess could be higher. Some insurers could also levy an additional excess over and above the basic amount when your car has been hijacked or stolen. Some insurers for example require you to pay excess when you’re involved in an accident after 23:00 at night. They may insist on a blood test and a police report to make sure you were not under the influence of alcohol when the accident took place.

By Liesl Peyper