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What is an ‘excess’ in insurance?
Key takeaways
- “Excess” in insurance does not mean an extra amount; it forms part of the claim, but it is the initial portion of the claim you are required to pay before your insurer pays the claim.
- Excesses differ according to the type of insurance, the type of claim and the associated risk to the insurer. They are usually for a fixed rand amount.
- Among other reasons, insurers apply excesses so that you don’t claim for trivial losses.
- You can negotiate with your insurer to pay lower premiums in return for higher excesses, or vice versa.
- In vehicle claims, there is no obligation on the insurer to refund your excess if the accident was not your fault.
The term “excess” in insurance may be confusing, because it differs from its common meaning. According to the Cambridge Dictionary, “excess” refers to “an amount, quantity, or degree that goes beyond what is necessary, normal, or reasonable”.
But in the language of insurance, the term refers to the initial portion of an insurance claim that you, the policyholder, are responsible for when the claim is processed. In other words, it is not an amount over and above the value of the claim; it is the portion of the claim that comes out of your own pocket. The insurance company pays the rest.
For example, your claim on a policy is for R20 000 and the required excess is R3 000. You need to pay the excess of R3 000 from your pocket and the insurer will pay the balance of R17 000.
Excesses apply to most types of policies, including vehicle cover, home contents cover and building cover.
Why must I pay a monthly premium and when I claim?
There are three main reasons why insurers require policyholders to pay an excess when they claim:
It ensures you do not make trivial claims for small amounts and that your cover is reserved for larger claims when you need it most. Thus for a loss of less than the excess amount, you would pay for it from your own pocket without involving your insurer.
It lowers your premiums. By eliminating small-value claims and their associated administration costs, insurers can offer more competitive pricing.
It incentivises you to take responsibility for the safety and upkeep of your possessions.
Why do excess amounts differ?
Although insurers differ in how they apply excesses, it’s common to stipulate a standard amount for regular claims, with higher or additional excesses for claims stemming from higher-risk scenarios.
For example, on a car insurance policy, the standard excess might be R3 000 for a claim in an accident where the driver of the insured vehicle is the designated driver but R5 000 for a non-designated driver under the age of 25 years.
Insurers nowadays typically require excesses of fixed amounts in rands, although some require the excess to be a percentage of the claim – say, 10 percent. It’s important to establish this when taking out cover.
Can I adjust my policy excesses to what I can afford?
Most insurers will reduce your monthly premiums if you opt for higher excesses. This 
also works the other way around: for higher premiums you can lower your excesses.
You need to ask yourself whether you would prefer to pay lower monthly premiums or to pay a lower excess when you claim.
There are several factors to consider when weighing up premiums versus excesses:
- What your possessions are worth: the excess should be in proportion to the value of the insured items.
- How often you expect to claim: if you consider yourself a low risk to the insurer – for example, if you use your car infrequently and it sits in the garage most of the time – you may consider higher excesses to bring your premiums down.
- Your cash reserves: consider whether or not you would have the necessary cash available to afford the excess you decide on.
In some cases – for example, as a special deal to pensioners – insurers may reduce certain excesses on a policy to zero.
Must I pay an excess if an accident wasn’t my fault?
On vehicle insurance claims, it may seem unfair that you have to pay an excess if the damage to your car was caused by someone else. However, this does not seem to be an issue with other types of policies. For example, if your home is burgled (and it is 
obviously not your fault), there will be an excess to be paid when you claim, which you are unlikely to question.
The excess must be paid upfront in order for a claim to proceed, and you may need to pay it directly to the panel beater who repairs your car. Your insurance company will try to recover its costs, including your excess, from the third party or the third party’s insurer. However, if it fails to do so, the amount you paid from your own pocket will not be refunded.
See “Insurers are not legally obliged to refund excesses”, below, and for a more detailed explanation of your options in this situation, see “Who pays for the damage to my car from an accident that wasn’t my fault?”
What must I consider when comparing insurance quotes?
It is important, when shopping for insurance and comparing quotes from different providers, to compare premiums against the excesses you are required to pay when 
claiming. This is because you may be tempted to accept a policy with lower premiums only to find out when you claim that the excesses are more than you expected.
To compare apples with apples, the excesses need to be similar, as should any other conditions or exclusions in the policies.
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INSURERS ARE NOT LEGALLY OBLIGED TO REFUND AN EXCESS It is common in vehicle accident claims for claimants who believe they were not at fault to expect their insurer to refund their excess. However, there is no legal obligation on insurers to do so, Edite Teixeira-McKinon, the Lead Ombud of the Non-life Insurance Division of the National Financial Ombud Scheme (NFO), says. “If an insurer decides to pursue a recovery against a third party, it She cites a case that came before her division. A complainant (Mr A) was dissatisfied that his insurer had not yet recovered his excess from the liable third party. The insurer had settled Mr A’s claim and then proceeded to attempt to recover the damages, including Mr A’s excess, from the third party. The complaint was referred to the insurer, which responded saying the recovery against the third party was still ongoing. The NFO reminded Mr A that the excess is the first portion of any claim that a claimant is contractually required to pay, irrespective of whether the claimant was liable for the accident or not. It was highlighted to Mr A that this was also stated in his insurance policy. Mr A was told that the NFO could not compel the insurer to pursue a recovery of the excess. This was because an insurer, according to the legal principle of subrogation, obtains the right to recover its own costs from a third party. The insurer may try to recover the excess as a courtesy to the claimant but is under no legal obligation to do so. Mr A would not be refunded the excess if the recovery was not successful, the NFO said. However, nothing prevented him from pursuing a civil claim directly against the third party once the insurer had decided not to pursue the recovery any further. The NFO found in favour of the insurer. It had initiated the recovery process, and as the process was still ongoing, Mr A would have to let the process run its course. |
usually includes the excess paid by the claimant. It does so not because it is legally or contractually obliged to do so, but as a matter of courtesy to the claimant. If the recovery is successful, then the insurer will refund the excess to the claimant and may reinstate the no-claims status. Often insurers refund the excess even when they have only made a partial recovery against the third party,” Teixeira-McKinon says.
This article was written by Martin Hesse and reviewed by Edite Teixeira-McKinon, the Lead Ombud of the Non-life Insurance Division of the National Financial Ombud Scheme
