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An excess payment, often referred to simply as "excess," is a predetermined amount of money that policyholders agree to contribute towards the cost of a claim before their insurance cover kicks in. It''s essentially the portion of a claim that you''re responsible for covering out of your own pocket. This concept is prevalent across various types of insurance, including vehicle and home insurance.
What's the rationale behind insurers implementing excesses?
The purpose behind having an excess is multifaceted. Firstly, it serves as a financial safeguard for insurers, helping them manage risk by discouraging policyholders from making frequent small claims. Without an excess, insurers might face a barrage of minor claims, which could ultimately drive-up premiums for everyone. Additionally, excess payments act as a mechanism to keep insurance premiums affordable for policyholders. By agreeing to pay a portion of the claim upfront, policyholders demonstrate their commitment to sharing the financial burden of potential losses with the insurer.
Let''s illustrate this with an example: Imagine you need to repair damage to your car amounting to R3000. However, your insurance policy has an excess of R4000. In this scenario, because the repair cost falls below the excess amount, you would need to cover the entire R3000 repair bill yourself. Conversely, if the repair cost exceeded the R4000 excess, you''d still be responsible for paying the excess fee, while the insurer would cover the remaining balance of the claim.
Beyond managing risk and affordability, excess payments also play a role in promoting responsible behavior among policyholders. Knowing that they''ll be required to contribute towards the cost of a claim can incentivise individuals to exercise caution and drive more responsibly, thereby potentially reducing the frequency and severity of accidents.
However, it''s important to note that excess structures can vary between insurance policies and providers. In addition to the standard or basic excess, insurers may impose additional excesses under certain conditions or circumstances. For instance, an insurer might apply an age excess if the driver involved in an incident is under a specified age threshold. These conditional excesses can significantly impact the total amount payable in the event of a claim.
To avoid surprises during the claims process, it''s important for policyholders to familiarise themselves with the terms and conditions of their insurance cover. By carefully reviewing their policy documents and understanding the specifics of their excess arrangements, individuals can make informed decisions tailored to their needs and financial circumstances.
In summary, while insurance excess payments may seem like a complex aspect of insurance policies, they serve important purposes in managing risk, maintaining affordability, and promoting responsible behavior. By grasping the fundamentals of excess payments and staying informed about their insurance coverage, policyholders can navigate the insurance landscape with confidence and peace of mind.
SOURCE
https://www.iwyze.co.za/support/product-docs#All
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