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Know Your Policy – Part 4; Your Policy Excess Structure

By Kayser Baird | Durban | October 13, 2014

Your policy excess is a vital part of your insurance policy

~Kayser Baird Insurance

Having an excess or first amount payable is by no means compulsory, you can elect to waive the excess but in return the insurance company will charge you a higher premium. When you reach the age of 55 Kayser Baird will waive your excess for free but up until this age it is an important component of your insurance which helps to keep your monthly insurance premiums down.

The vast majority of insurance products in South Africa include an excess on the Vehicle, Buildings and All Risks sections of the policy. The lower the excess, the higher the premium and vice versa. Some insurance policies carry a “hurdle amount” which means that you don’t pay an excess for small claims, but when your claim exceeds a certain amount your excess kicks in.

A policy excess means that you share in a portion of the risk with the insurance company.

A typical excess on a car would be a flat R2,500 per claim, or 5% of the claim or a combination of both. Your buildings insurance may have an excess of R1000 or R2000.

Across the insurance companies risk pool, the policy excess encourages people to take care of their belongings to avoid losses and this reduces the insurance companies exposure to claims, which keeps premiums down. At a personal level your policy excess enables the insurance company to charge you a lower premium. People that claim frequently, particularly for events that are their fault will often pay a higher excess than the standard excess.

Why do excesses increase?

Percentage bases excesses will usually not change from one year to the next – but if you have a flat (Rand based) excess on your policy these will be adjusted upwards with inflation from time to time. Insurers will usually not increase excesses every year, but eventually your flat excess will increase as the cost to repair vehicles and replace personal belongings increases. When excesses are too low your policy premium will eventually be impacted and low excesses will not act as an adequate deterrent to regular claimants to prevent them from claiming for small losses and for not taking care of their belongings.

Why do I have to pay a vehicle excess when an accident is somebody else’s fault?

Your insurance policy will cover you at the same terms irrespective of whether an accident is your fault or not. The alternative to claiming from your policy is to attempt to claim from the other drivers policy, but this avenue can be fraught with problems and as a broker, we would always strongly recommend that you claim from your own policy.

From the insurance companies point of view, they have to pay out the claim irrespective of whether the accident was your fault or not. The difference is that your insurance company may be successful in recovering money from the other drivers insurance company, and if they do – they will refund any excess that you paid. The problem is that this can take many months, and all too often it is not possible to make a recovery either because the other driver changes his story, or it is considered too expensive to pursue a recovery, particularly for smaller claims.

If I have the choice, how should I structure my policy excess?

South Africa’s leading insurers such as Santam and Hollard have good, transparent excess structures and the standard structure will suit the vast majority of people. Certain insurance companies use marketing tactics with confusing excess structures designed to attract clients, but ultimately will cost you money. At Kayser Baird we recommend a simple excess structure that is sufficient to keep your premium down, but not too high to cause you financial distress in the event of a claim.

If you are a high net-worth individual we would recommend that you take a voluntary additional excess on your policy. By sharing in more of the risk with the insurance company you are able to lower your premiums.

Installing a tracking device in your vehicle is extremely important because your Theft and Hijacking excess is automatically waived and you have a good chance of recovering your vehicle in the event that it is stolen. The cost impact of having your vehicle stolen is significant and it is far better to get your vehicle back if it is stolen, even if there are damages that need repairs. Remember also that if your vehicle is recovered quickly it will be returned to you without having to be impounded by the police so there is no impact on the resale value.

For the majority of policy holders under the age of 55, we would recommend taking the standard excess that the insurance company offers.

High level overview of standard policy excesses;

 

Kayser Baird offers both Personal and Business short term insurance and is one of the largest brokers in South Africa. To request a quote for your personal insurance please contact us.

 

Next week in “Know Your Policy” we look at the sometimes contentious issue of your policy Excess or First Amount Payable in Part 5 – Convenience Benefits on your Personal Policy.

Read previous posts in the “Know Your Policy” series;

Part 1 – The Average Clause
Part 2 – All Risks Cover
Part 3 – Residential Buildings Insurance

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