Why Do You Have to Pay an Insurance Excess? The Logic Behind Insurance
finance
When you take out cover, the idea of paying an insurance excess can feel frustrating, especially when you’re already paying a monthly premium. But this cost-sharing mechanism is a core part of how insurance works. If you’ve ever wondered why it exists or how it affects your claim, this guide from Auto and General Insurance explains the logic behind it and how it impacts your cover in real-world situations.
Understanding your excess is essential because it directly influences your claim payout, your monthly premiums, and even your policy choice.
What is an insurance excess?
An insurance excess is the amount you agree to pay toward a claim before your insurer covers the remaining approved cost. It is your agreed contribution toward a claim and forms a key part of your insurance contract. It’s important to distinguish between premiums and excess:
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Your premium is what you pay monthly to keep your policy active
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Your excess is what you pay only when you make a claim
The excess becomes payable upon approval and processing of the claim. It applies across different types of insurance, not just Car Insurance, but also Building, Home Contents, and even specialised policies, like Professional Indemnity Insurance, which will include excess structures. Excess amounts vary between policies and are usually agreed upon when you take out cover. They form part of your insurance agreement and are clearly outlined in your policy schedule. Different types of excesses may include:
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Standard excess
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Voluntary excess
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Additional excess
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Young driver excess
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High-risk or specialised excesses
Imagine that a driver submits a claim for R40,000 in accident damage with a R5,000 excess. The insurer pays the remaining R35,000 after the policyholder contributes their excess amount. In simple terms, the insurer pays the remaining approved amount after your contribution is deducted.
Why do insurers charge an excess?
The logic behind insurance excesses is rooted in risk-sharing and financial sustainability. Insurers cannot absorb every minor loss without significantly increasing premiums for all policyholders. Excesses exist to create a balance where both parties share responsibility for claims.
They help insurers by:
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Reducing administrative claim costs for small incidents
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Limiting opportunistic or fraudulent claims
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Encouraging more responsible behaviour from policyholders
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Keeping premiums more affordable across large customer groups
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Supporting fair balancing of claim costs across policyholders
This system is not designed to penalise customers but to ensure the insurance model remains sustainable for everyone. If insurers paid every minor scratch or dent claim in full, premiums would likely increase for all drivers over time, even those who rarely claim. In essence, excesses aim to prevent unnecessary claims and discourage fraudulent activity while maintaining affordability.
Is it better to have high or low excess?
Choosing between a high or low excess depends on your financial situation and risk tolerance. There is no universal “better” option. It comes down to balancing monthly affordability with potential claim costs. A higher excess usually means lower monthly premiums, while a lower excess results in higher monthly premiums but lower out-of-pocket costs during a claim. High excess may suit:
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Experienced drivers with lower risk profiles
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Policyholders with emergency savings
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People focused on reducing monthly premiums
Low excess may suit:
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New or higher-risk drivers
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Those without immediate access to savings
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People who prefer predictable claim costs
The key is understanding the financial trade-offs between short-term affordability and long-term claim exposure. A driver chooses a high excess to secure lower premiums but later struggles to afford the excess amount after an accident, creating unexpected financial pressure. This is why choosing an excess that suits your finances is critical. Ultimately, it’s about risk versus monthly cost and finding a structure that aligns with your financial comfort.
When do you have to pay an excess claim?
An excess is typically payable during the claims process once your claim has been assessed and approved. In most cases, it is deducted from your final settlement or paid directly before repairs begin. However, the timing and amount can vary depending on the type of claim and policy conditions. Situations where additional excess conditions may apply include:
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Younger drivers
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Unlisted or unauthorised drivers
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High-performance vehicles
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Certain high-risk incidents
These factors can influence your total excess requirement, depending on the circumstances of the claim. It’s also important to note that not all claims are treated the same way. Fault determination, policy endorsements, and claim type can all affect when and how your excess is applied. In most cases, the excess is a straightforward deduction, but in more complex claims, it may involve multiple layers of assessment.
Can you claim back excess payments?
In some situations, yes. You may be able to recover your excess. This usually happens when a third party is found fully responsible for an incident, such as a car accident, and the insurer successfully recovers costs. This process is known as recovering costs from the responsible party, and it is subject to investigation and legal or insurer-led recovery efforts. However, it is important to understand that claiming back excess is not guaranteed. It depends on:
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Proof of third-party liability
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Successful recovery of funds by the insurer
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Cooperation from all involved parties
Consider the driver who is rear-ended at a traffic light and initially pays their excess. Months later, the insurer successfully recovers costs from the at-fault driver’s insurer, and the excess is refunded. Because of this process, refunds are often delayed and are subject to successful recovery, meaning patience and due process are required.
How insurance excess help keep insurance sustainable
Insurance excess plays a key role in the long-term sustainability of insurance systems. Without them, insurers would face significantly higher claim volumes, especially for minor incidents. Over time, rising repair costs, increased claim frequency, and inflation in parts and labour all contribute to higher claim expenses. Excess structures help insurers manage these pressures while maintaining affordable cover for customers. Excesses also:
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Help control overall risk exposure
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Reduce the likelihood of frequent low-value claims
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Support stable premium pricing across policyholders
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Encourage responsible use of insurance products
By sharing responsibility, insurers can continue offering cover that remains financially viable for both high-risk and low-risk customers. This balance is what keeps insurance accessible rather than prohibitively expensive.
Frequently asked questions
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Why do I have to pay an insurance excess?
You pay an insurance excess to share the financial risk between you and your insurer. It reduces small claims, discourages fraud, and helps keep premiums more affordable for all policyholders.
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Is it better to have a high or low insurance excess?
A higher excess usually results in lower monthly premiums, while a lower excess increases premiums. The best option depends on your budget, savings, and ability to pay a lump sum when claiming.
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When do I pay my excess on a claim?
You typically pay your excess when your claim is approved. It is either deducted from your settlement or paid before repairs begin, depending on your insurer and the type of claim.
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Can I get my insurance excess back?
In some cases, yes. If your insurer recovers costs from a responsible third party, your excess may be refunded. However, this depends on successful recovery and is not guaranteed.
Get an Auto and General Insurance quote
Understanding your insurance excess helps you choose the right level of cover and avoid surprises when you claim. If you’re ready to compare options and find cover that suits your needs, you can get an online quote today. Get a personalised Auto and General Insurance quote and explore flexible cover options.
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Disclaimer: The information in this article is provided for informational purposes only and should not be construed as financial, legal, or medical advice. Auto and General is a licensed non-life insurer and FSP, Ts & Cs online.
