Insurance jargon shouldn’t stop anyone from understanding how their cover works. One word that people trip up on in particular is “excess”. In this blog we go over what an insurance excess is, the different types, when you will have to pay it and how to choose one that’s right for you.
What is an insurance excess?
Your excess is the amount of money that will come out of your pocket when you make a claim. Think of it as the contribution you have to make; your insurer will then pay the remaining balance.
How does an excess work?
Let’s say you chose R5,000 as your excess when you bought car insurance. After a minor accident, you claim from your insurer to repair the damage. The repair on your car costs R20,000. You will have to pay R5,000 of the R20,000 and your insurer will cover the rest, i.e. R15,000.
What excess should I choose?
The higher your excess, the lower your insurance premium will be, and vice versa. So, choosing an excess is about finding a sweet spot between what you pay on a claim and what you pay each month for your insurance.
One way to calculate an appropriate excess is to determine the maximum amount you can comfortably afford to pay out of your pocket if you had to make a claim tomorrow. Picking this level means you’ll avoid getting into trouble when it comes to claiming, while minimising the amount you have to pay for insurance each month.
TIP: It’s possible you’ll need to claim more than once in a year, and you’ll need to pay the excess each time. So be sure you have the cash to cover more than one excess, just in case.
What types of excesses are there?
Different insurers have different types of excesses. Be sure to ask your insurer upfront what types of excesses they have so that you are not caught off guard when it comes to claiming.
Flat amount excess
Many insurers will have a set, flat amount that you will have to contribute towards every claim. For example, if your excess is R3,000, you will contribute that amount to every claim you make, irrespective of the amount of the claim.
Other insurers will allow you to choose a flat excess from a range.
For example, at Naked we have a range that you can choose from when selecting your excess. You can also change your excess anytime on our app. As your financial situation changes over time, we’ve made it simple to update your insurance to match.
Percentage of claim excess
Some insurers have a percentage excess that is proportionate to your claim. For example, your insurer might say that you have a 10% of claim excess. So, if you have a claim of R100,000 you will contribute 10% of R100,000 (i.e. R10,000) and your insurer will pay the remaining R90,000.
These types of excesses are more difficult to budget for and could easily add up to very large amounts. For example, if your R350,000 car is stolen, your contribution would be R35,000.
TIP: Keep an eye out for a minimum excess when insurers offer percentage based excesses. For example, your insurer has a percentage excess set at 10% and a minimum excess set at R3,000. This means that if a claim is less than R30,000, the minimum excess will be applied. So if your claim will cost R5,000, you’ll have to pay the minimum excess of R3,000.
Special/Additional excess
Depending on the circumstances of your claim, some insurers apply an additional excess. The most common circumstances are:
- If the driver is below the age of 25
- If the person driving at the time of the accident has only had their driver’s licence for less than two years
- If the person driving at the time of the accident isn’t listed on the policy
Additional excesses could even apply if the claim happens after a certain time at night or in your first three months after taking up the policy.
It is best to ask your insurer about any additional excesses before you purchase your policy to make sure you don’t get any nasty surprises at the claims stage.
In order to prevent surprises when it comes to claiming, at Naked there are no additional excesses in any of our products. The excess you choose is the maximum amount you will ever have to pay on a valid claim.
Glass/windscreen excess
Some insurers have a special excess for glass/windscreen claims; sometimes glass claims are even excess-free. Be sure to read your policy wording so that you know what to expect when you claim for glass or your windscreen.
How does it work at Naked? On glass claims, the excess on claims under R2,000 is R0, on claims between R2,000 and R3,000, the excess will be claim amount less R2,000, and when claims are over R3,000, the excess is R1,000.
Why are there excesses in the first place?
Your policy has an excess to make sure that you have some skin in the game – knowing that you’ll have to pay a portion of the claim usually means that you’re more inclined to drive responsibly and keep your car safe. Another reason is that it prevents small claims, which help to reduce the cost of an insurer providing the insurance. So your excess is key to making insurance premiums more affordable.
When will I have to pay an excess?
You will be responsible for the excess every time you make a claim. You might have to pay the money or it could take the form of a reduction in the payout to you.
For example:
- If your car is stolen or written off, your excess will take the form of a reduction in your payout. Let’s say your R300,000 car was stolen and you had a flat excess of R5,000 you will be paid out R295,000 (R300,000 less R5,000).
- If your car can be repaired, you will make an actual payment of your excess amount to the panel beater when you pick up your car after repairs.
If the accident was not my fault, do I still pay an excess?
Even if the accident was someone else’s fault you will still have to pay your excess, to make sure you get back on the road ASAP. However, the good news is that even if you have to wait a bit, you will get your excess back if your insurer makes a successful recovery, so your loss will only be temporary. Heads-up, making the recovery can take a couple of months as it usually involves lawyers, court cases, etc.
What happens if you can’t afford to pay an excess after an accident?
The answer varies from insurer to insurer. They might offer you a payment plan or they might not start repairs or release your car from the panel beater (if it has been repaired) until you have paid the excess. This is why it’s important to choose an excess that you can afford to pay so that you’re not stuck without a car when you need it.
All in all, it’s extremely important to choose an excess that you can afford to pay at a moment’s notice so that you can get back on the road ASAP. Remember, with Naked, you can update your excess simply and easily on the app. If you have any questions about your excess, feel free to drop us a line at help@naked.insure.