The "first amount payable" in the context of insurance is commonly known as the excess (or deductible in some regions), representing the initial portion of a claim you are responsible for paying before your insurer covers the rest.
Understanding the "First Amount Payable" (Insurance Excess)
In essence, the first amount payable is the predetermined sum that you, the policyholder, must contribute towards a claim before your insurance company steps in to cover the remaining damages or loss. This amount is either paid directly by you or deducted by the insurer from the total payout for a valid claim. It signifies the part of the loss or damage that the insurer does not pay for.
The primary purpose of this charge is to:
- Reduce small claims: It discourages policyholders from submitting minor claims that could be handled out-of-pocket, saving administrative costs for insurers.
- Encourage responsible behavior: Knowing there's an excess can prompt policyholders to take more precautions to prevent losses.
- Influence premiums: By accepting a higher excess, policyholders can often reduce their monthly insurance premiums.
How the Excess Works
The structure of the first amount payable can vary depending on your specific insurance policy:
- Fixed Amount: This is a set monetary value, for example, R2,500. Regardless of the total claim amount (as long as it exceeds the excess), you pay this fixed sum.
- Example: If your excess is R2,500 and you have a valid claim for R10,000, you pay R2,500, and your insurer pays R7,500.
- Percentage of Claim: In some cases, the excess might be a percentage of the total claim value, often with a minimum fixed amount.
- Example: If your excess is 10% of the claim, with a minimum of R1,500, and your claim is R20,000, you would pay R2,000 (10% of R20,000). If the claim was R10,000, you would still pay the minimum of R1,500.
- Combination: Some policies might apply a combination, such as a fixed amount plus a percentage for specific claim types (e.g., hail damage, theft).
Types of Excess
In various insurance policies, you might encounter different types of excess:
- Standard Excess (Compulsory): This is the mandatory amount set by the insurer for a particular policy or risk.
- Voluntary Excess: Policyholders may choose to increase their standard excess to reduce their monthly premiums. A higher voluntary excess typically leads to lower premiums.
- Additional Excess: Insurers may impose extra excess amounts for specific circumstances, such as:
- Younger drivers (due to higher risk).
- Unlisted drivers (when the driver at the time of the incident is not a regular driver on the policy).
- Specific events (e.g., flood damage, riot damage).
- Multiple claims within a short period.
Key Aspects of Insurance Excess
Understanding the first amount payable is crucial when choosing and managing an insurance policy.
| Feature | Description |
|---|---|
| Definition | The initial portion of a loss or claim that the policyholder must pay. |
| Purpose | Reduces small claims, encourages careful behavior, and helps lower overall premiums. |
| Structure | Can be a fixed amount, a percentage of the claim, or a combination. |
| Impact on Premium | Generally, a higher excess leads to lower premiums, and a lower excess leads to higher premiums. |
| Visibility | Clearly stated in your insurance policy wording and schedule. |
Practical Insights
- Read Your Policy Wording: Always review the terms and conditions of your insurance policy to understand all applicable excesses. This is crucial as they can vary significantly.
- Balance Premium vs. Excess: Consider your financial situation and risk tolerance when choosing an excess amount. A lower premium with a high excess might be suitable if you have a robust emergency fund, whereas a higher premium with a lower excess offers more protection against unexpected costs.
- Understand Claim Payouts: Be aware that the excess is subtracted from the total approved claim amount, not added to it. If your valid claim is less than the excess, the insurer will not pay out.
For more information on standard insurance terminology, you can refer to resources from reputable insurance associations, such as the SAIA List of Standardised Terminology.
