What is insurance excess and what does it entail?

Paying insurance premiums every month already takes a chunk out of your disposable income, and then you still need to pay an excess when you claim. What is an excess, and why do you need to pay it?

An excess is an amount that you and your insurer agreed on that you, the client, will be liable for in case of a claim. It is the first amount to be paid before the insurer settles the remainder of the claim amount, and it’s also the uninsured portion of your loss. All insurers have excesses in place to discourage clients who make trivial and small claims or claiming too often. In this way, by preventing a myriad of claims for minor issues, they can keep insurance premiums down and affordable for clients to still enjoy the peace of mind of cover in emergency situations.

Fortunately, the higher your excess, the lower your monthly premiums will be, and vice versa. This provides a negotiation tool and a conversation to be had with your broker, to tailor your insurance policy to your needs and affordability. It’s important to review your personal situation regularly and keep your broker informed of any changes so that your policy can be adapted if needed. 

You are still liable to pay the excess even if your damage was not your fault. A third party’s negligence does not waive your excess, as you, the insured, are still liable for that first portion of the claim, and insurer administrative costs for a car insurance claim, for example, still costs the same, regardless of who was at fault.

Most short-term insurers will claim their outlay from the guilty third party, and this includes the excess amount you had to pay. You can, if your insurer is unable to recover all costs, sue the third party for your excess, but you can’t do that without prior agreement with your insurer to avoid duplication of action Most likely, this will only be allowed in cases where the insurer does not feel it will be able to have a successful case against the third party or when the costs of recovery might be too high. There are other factors too that could hamper the cost recovery from the negligent or guilty third party, such as incorrect personal particulars, they cannot be traced, or they don’t have assets or income to attach a claim.

No matter our opinion on an insurance excess, it is real, and it forms part of any insurance policy. The good news is that the excess amount depends on various factors, and it can be negotiated, planned, and adjusted with the help and advice of your reliable broker.