When you buy a new car, it is prudent to take out
insurance cover for the vehicle. One important
thing that an insurance agent, broker or an
insurance company will speak to you about, will be the
insurance excess.
1. What is an insurance excess?
Insurance excess is the additional sum of money that an
insurance company requires policyholders to pay for a loss. The
excess is usually paid to the garage repairing your car before you
can collect your car.
For example: Mr. Severus Jacobs took out a short-term
insurance cover for his car. His car was involved in an accident
and he gets a quotation for the repair of the damages amounting
to N$ 75 000. Should he have signed up for an excess amounting
to N$ 15 000, his insurance company will only pay out N$60
000 while he will have to pay N$15 000 out of his own pocket.
2. Different forms of excesses
There are different forms of excesses namely compulsory
and voluntary excess. Compulsory excess refers to the excess
imposed by insurer onto the insured. Compulsory excess might
be higher for new, younger or inexperienced drivers. You are
also likely to paying higher excess fee should you be driving a
luxury car.
Voluntary excess refers to what is being accepted by the
insured in return for premium discount. The higher your
voluntary excess the lower the premium you will have to pay to
the insurance company. However, you should be prepared to be
able to pay the excess should anything happen to your car.
3. How will policyholders know about their insurance excesses?
When policyholders are buying short term insurance they
should ask an insurance agent, broker and insurance company
they are dealing with to explain to them the additional amount
they will pay for the loss against their insured valuables. In
addition to that, policyholders should also carefully read and
understand the conditions of their insurance contracts.
4. What is the difference between a high excess and a low
excess?
A high excess insurance cover means that policyholders will
pay more out of their pocket when a claim arises and a low
insurance excess cover means that policyholders will pay a
lesser amount out of their pocket.
5. What are the reasons for me to pay high excess or low excess?
You will pay high voluntary excess should you want to do so.
The higher your excess, the lower your insurance premiums are
going to be. However, should a claim arise you must be able to
pay the excess out of your own pocket. A high insurance excess
is derived from high risk policyholders i.e. policyholders that a
specific insurer have rated as high insurance risk and low risk
policyholders that an insurer have rated them as low insurance
risk.
6. What if I agree for excess and do not have money at the time
of claim?
Let’s look back at the example of Mr. Severus Jacobs
mentioned above and the case whereby he has to pay N$ 15 000
excess. The garage will not release the car until he paid up the
excess amount he agreed upon.
7. How does the low or high excess affect my insurance
premium?
As indicated above under point 5, a high insurance
excess means that policyholders will be paying low monthly
insurance premiums while a low insurance excess means that
policyholders will be paying high monthly insurance premiums.
This is because of risk-sharing between insurer and insured.
8. Can my high claim ratio affect the excess I have to pay?
Yes, a high claim ratio will cause your excess to increase and
this will also result in your monthly premium to increase. The
more claims you submit to the insurer to pay out, the more your
claim ratio goes up and you might be classified as a risky client.
9. When don’t I have to pay excess?
Should you be involved in a car accident and you were not at
fault meaning the person who caused an accident is known by
you and you have clear evidence e.g. accident record from the
police station, the insurer mostly will pay out the whole claim
and pursue the person at fault to recover the money.
Claims arising from natural disasters and accidents caused
by unknown persons are treated differently, as such you will be
responsible to pay the excess fee.
10. What conclusion can we draw from insurance excesses?
Excess is very crucial to both the policyholder and the insurer.
Hence, the policyholders should make sure that they understand
this concept to avoid complications and disappointments when
an insurance claim arises. Remember the more voluntary
excess, the less your insurance premium. But you will be paying
more out of your pocket should you incurred a claim.
