Car insurance has a lot of twists and turns that can be confusing to most people. Nevertheless, it's always important to be familiar with these terms, so you aren't caught off guard when calamity happens.
The definition and example of excess on car insurance
Car insurance excess refers to the amount of money you are expected to pay when you claim your insurance.
Here is an example to help you understand the concept.
Let's say you have an insurance policy that lists $200 as the compulsory excess and $100 as the voluntary excess. At the time of claim (after an accident), you'll be required to pay $300 as the “cost” of the claim.
Sound’s unfair, doesn’t it? Well, it’s important to note you’ll only be required to pay the excess on insurance if you are found to be the driver at fault.
Why does excess on car insurance exist?
It exists to protect insurance companies from people who are obsessed with making small claims too often.
In addition to that, you need to also remember that upon taking a car insurance policy, the insurance company is gambling on the fact that you'll do your best to avoid accidents. Excess on car insurance is one of the incentives put in place to ensure that you stay safe.
In short, excess insurance adds some responsibility on the policy taker.
Excess on car insurance versus car insurance deductibles
If you are keen on car insurance terms, then you must have heard of car insurance deductibles.
Aren't they similar to excess on car insurance? Let’s find out.
Car insurance deductibles refer to the amount of money on a claim that you are supposed to pay from your pocket.
For example, let's say you have listed $500 as deductible on your insurance company and, unfortunately, you got involved in a car accident that results in $1,500 in repairs.
Upon claim, your insurance company will pay you $1,000 ($1,500 minus the deductible). You are expected to pay the remaining amount from your pocket.
So, what is the difference between excess on car insurance and car insurance deductibles?
A car insurance deductible reduces your claim payout, whereas excess on car insurance doesn’t.
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Types of excess on insurance
So, there are two main types of excess on insurance. These include:
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- Compulsory excess.
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- Voluntary excess.
Compulsory excess
Just as the name suggests, compulsory excess is a must. There is no way around compulsory excess. Upon claim, you must pay the stated amount.
Please note that the amount of compulsory excess varies with insurance companies. But remember, the more expensive the vehicle, the more money you’ll pay. Also, drivers under the age of 25 are more likely to pay more in compulsory excess since they are more prone to reckless driving.
Voluntary excess
You can even call it “Optional excess.” It’s not compulsory—You decide how much you want to pay on top of the compulsory excess.
Why would anyone want to pay more excess on insurance?
Because the more the excess on insurance, the lesser your insurance premiums become.
At first, it might not seem like a great idea. Nevertheless, it’s still one of the few ways you can save money on your insurance premiums (especially if you are a new or young driver).
How is the excess on insurance paid?
Most of the time, the insurance company directs its clients on the acceptable payment methods. However, some insurers deduct the amount from the claim. In such a case, it's treated the same way as a deductible on insurance.
Excess Insurance
Excess insurance is an insurance coverage taken against the excess on insurance.
In simpler terms, excess insurance helps you pay the excess on insurance.
Here is an example to help you understand the concept.
Let’s say you have an insurance policy that lists $500 as the total excess on insurance. Upon claim, you’ll be required to pay that full amount. However, if you have excess insurance of $500, it will cover the cost, and you’ll not have to pay the excess on insurance from your pocket.
When taking excess insurance, we'd advise you to set an amount equal to your excess on insurance. Setting a higher limit doesn't make sense since you will never reach the limit.
Also, a lower limit means you'll still be required to pay some amount from your pocket.
In addition to that, the lower the limit, the higher the premiums for excess insurance.
Is there a limit on excess insurance?
Yes. Some insurance companies regulate the number of times you can claim your excess insurance. Others set limits on the total amount you can claim within a specified time.
Types of excess insurance
There are two types of excess on insurance:
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- Lifestyle excess insurance.
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- Excess insurance for single policy.
Lifestyle excess insurance is a policy that applies to excess on insurance for all types of policy you might have (from car to medical insurance).
Just as the name suggests, excess insurance for single policy is only applicable to your car insurance policy.
When is excess insurance not applicable?
Since excess insurance complements other major insurance policies, its validity is mainly determined by the rules and regulations of the “main insurance” policy it is covering.
We advise you to consult your insurance agent when applying for excess insurance. He/she will brief you on its strengths and limitations with regards to your “main” insurance policy.
When should I apply for excess insurance?
First of all, you should never apply for an insurance policy whose excess you can't afford. If you must, try and set a low voluntary excess (or none at all).
However, if you must include voluntary excess (to save money on premiums), then you can at least rest knowing excess insurance will give you some relief when you file a claim.
