Customers’ Nightmare: How to Understand Excess In Your Insurance Policy

Understanding Excess

One of the reasons why many people do not trust insurance companies is the lack of transparency and understanding of technical terms in insurance contracts. A client once asked, “Why will I pay you a premium and when a claim arises you start speaking ‘big-big’ grammar and interpreting words from the policy which I never had the opportunity to read before incepting the contract?”. This was the first question thrown at a young upcoming insurance marketer in 2011. After admitting making a mistake by not giving enough information (largely due to lack of product knowledge) about the motor insurance product, he lost the renewal of that business!

As a risk advisor or insurance customer without prior knowledge of what excess means, here is a simplified means of getting yourself and client educated without breaking the trust between both parties (LOL).

So, our focus today is on Excess – This is the amount you have to pay if you decide to make a claim on your policy. It is a way of making the customer a part of the risk.

Many insurance policies – Motor, Business Interruption, Travel, Householder Insurance and a host of others include an excess and it is always in the policy contract.

Now, how does excess works? If you own a householder insurance policy and an item gets damaged, lost or stolen, if the cost of repair or replacement is N30,000 and there is an excess of N10,000, it means you would pay N10,000 while the insurer pays N20,000.

Different levels of excess apply in different insurance policies, while some policies may have more than one applicable excess, others may have different types.

Types of Excess

As stated above that most policies have different types of excess – Compulsory Excess or Voluntary Excess. While the compulsory excess accompanies every claim, the voluntary excess is chosen by the insured(customer). However, if you decide to choose a higher excess, it means your insurance premium becomes lower and if bought into the policy, it means that the customer will not have excess deducted in the event of a claim.

How Do You Pay for Excess?

At the event of a claim, your insurer will advise you to either pay the excess or get it deducted from your total pay-out on claims or pay to your repairers/mechanic or supplier.

How You Can Manage Not to Pay Excess

In some cases, some insurers can waive the application of excess on a policy and request that such customer pays for it. Under motor insurance policy, there is an option that allows a customer buy back the excess. From inception, there is an option of buying the excess or if you want to retain it in the policy. Once an Excess Buy Back (EBB) is bought, the insurer has waived its right to deduct excess when paying a claim. This is usually accompanied by a higher premium payable on a policy.

Also, an insurer could waive any applicable excess on the policy. For instance, if an accident occurs and the customer is not at fault, once the customer is able to provide the details of the negligent party and his/her insurer for the insurance company to pursue their costs (subrogation) associated with the accident, such an excess will be waived.

If you have questions relating to the excess in any of your insurance policies and do not understand the technical jargons written, we can assist you with a FREE POLICY REVIEW to ascertain the level of cover you have and how to achieve more with your insurance policy. We are just a call/email away.

Acknowledgment

The author would like to thank and acknowledge the contributions made by Adebiyi Muhammed, a Team Lead, Schemes and Retail with YOA Insurance Brokers Limited in their Lagos office. He can be reached at muhammed.adebiyi@yoainsurance.com.