Insurance Excess

Excess is a term that applies to the insurance industry and comes into effect when you claim against your insurance policy. It is the amount that you are liable for contributing towards the replacement costs of an item that you claim. Most insurance plans have a fixed excess rate, which means that when you claim on an item, you pay the first portion of the replacement or repair cost yourself. So if your excess on a given item, like your car, is R2 000, and the repairs come to R10 000, you pay the first R 2 000, and the insurance company pays the rest.

It's important to note that the excess covers the first portion, and that it is not a pro rata sum. The practical implication of this is that sometimes the insurance company will not contribute anything to the costs if the claim is too small. This applies in the case of where your total claim amount is less than the excess amount - you will then have to pay the excess first, meaning that you pay for the entire claim amount, and the insurance company won't pay anything.

There are different types of excess, depending on the types of insurance policies that you hold. Specific parts of insurance policies are also subject to different excess amounts. For instance, your insurance against motor vehicle theft will be subject to one excess amount, while your accident insurance will be subject to a different excess amount.

The further implication of this is that it is often worthwhile to not claim for amounts that are less than, or even slightly more than, your excess (if you can afford not to, in the case of the latter). This is because of something that many insurance companies offer, which is a no claim bonus. A no claim bonus is a refund that an insurance company will grant you for completing a specified period of time without making any claims. It may come in the form of a lump sum payout or as a reduction in future premiums.

These days you can also take out a separate insurance policy that will cover a percentage of your excess. This obviously implies an increase in premiums, which is not usually a large extra amount, and is a good idea if you have high excess amounts on your main policy.