When it comes to car insurance, understanding the concept of excess is crucial. It plays a significant role in the overall cost – sharing mechanism between you and your insurance company during a claim. Whether you’re a new driver purchasing car insurance for the first time or a long – time motorist looking to review your policy, getting to grips with how car insurance excess works can help you make more informed decisions about your coverage.
Definition of Car Insurance Excess
Car insurance excess, also known as a deductible in some regions, is the amount of money that you, the policyholder, are responsible for paying out – of – pocket when making a claim on your car insurance policy. In simple terms, it’s the initial sum that you contribute towards the cost of a claim before your insurance company steps in to cover the remaining balance.
For example, let’s say you have a car insurance policy with an excess of 500. If you’re involved in an accident and the cost of repairs to your vehicle is 2,000, you’ll first pay the 500 excess. After that, your insurance company will cover the remaining 1,500, provided the claim is covered under the terms of your policy.
Types of Excess in Car Insurance
Compulsory Excess
Compulsory excess is the minimum amount set by the insurance company that you must pay for every claim. This amount is non – negotiable and is clearly stated in your insurance policy. Insurance companies use the compulsory excess as a way to reduce the number of small, trivial claims. Since policyholders have to pay this amount upfront, they’re less likely to file a claim for minor damages. For instance, if your car has a small scratch that can be fixed for 200, and your compulsory excess is 300, it may not be worth filing a claim as you’d still have to pay the full $300 excess even though the repair cost is less.
Voluntary Excess
Voluntary excess is an additional amount that you can choose to add to the compulsory excess. By opting for a higher voluntary excess, you can often lower your insurance premium. This is because you’re taking on more of the financial risk in the event of a claim, so the insurance company sees you as a lower – risk policyholder. For example, if your compulsory excess is 500, and you choose to add a voluntary excess of 500, making the total excess 1,000, your insurance company may offer you a reduced premium. However, it’s important to note that if you do make a claim, you’ll be responsible for paying the full 1,000 excess.
How Excess Works in Different Types of Car Insurance Claims
Collision Claims
In the case of a collision claim, the excess is applied to the cost of repairing or replacing your vehicle. If you collide with another car or an object, and the cost of repairs is 4,000, and your excess is 800, you’ll pay the 800, and your insurance company will cover the remaining 3,200. The insurance company will typically arrange for an assessment of the damage by a qualified mechanic or an approved repair shop. The repair cost estimate will determine the amount you and the insurance company will contribute.
Comprehensive Claims
For comprehensive claims, which cover non – collision – related damage such as theft, vandalism, or damage from natural disasters, the excess works in a similar way. If your car is stolen and its value is determined to be 15,000, and you have an excess of 1,000, you’ll receive 14,000 from the insurance company after the claim is approved. In the case of damage from a hailstorm, if the repair cost is 3,500 and your excess is 600, you′ll pay the 600, and the insurance company will cover the rest.
Third – Party Liability Claims
When it comes to third – party liability claims, where you’re responsible for causing damage to another person’s property or injuries to another person, the excess may not always be applicable in the same way. In some cases, the excess may only apply if you also have a claim for damage to your own vehicle in the same incident. For example, if you hit another car and cause 5,000 worth of damage to their vehicle, and your policy has a third – party liability limit of 100,000, your insurance company will cover the 5,000 claim without you having to pay an excess. However, if your car is also damaged in the accident, and the repair cost is 2,000 with an excess of 400, you′ll pay the 400 for your own vehicle repairs.
Factors Affecting the Amount of Excess
Type of Vehicle
The type of vehicle you drive can influence the amount of excess. Luxury cars, high – performance cars, and cars with expensive parts typically have higher excess amounts. This is because the cost of repairs or replacement for these vehicles is usually much higher. For example, a luxury sports car may have a higher excess compared to a standard family sedan. Insurance companies set higher excesses for such vehicles to manage their own financial risk.
Policyholder’s Risk Profile
Your risk profile as a policyholder, which is determined by factors such as your driving record, age, and claims history, can also impact the excess. If you have a history of multiple accidents or traffic violations, the insurance company may consider you a high – risk driver and set a higher excess. Younger drivers, especially those with less driving experience, may also be subject to higher excess amounts. On the other hand, if you have a clean driving record and a good claims history, you may be eligible for a lower excess.
Location
The location where you live and primarily drive your car can affect the excess. Areas with a high incidence of car theft, accidents, or natural disasters may result in higher excess amounts. For instance, if you live in a large city with a high crime rate, the insurance company may increase the excess to account for the increased risk of theft or vandalism claims. Similarly, if you live in an area prone to severe weather conditions like hurricanes or floods, the excess for comprehensive claims related to natural disasters may be higher.
Advantages and Disadvantages of a High Excess
Advantages
Lower Premiums: One of the main advantages of choosing a high excess is that it can significantly reduce your insurance premium. As you’re taking on more of the financial risk in case of a claim, the insurance company is willing to charge you less for the policy. This can be a great option for drivers who are confident in their driving skills and don’t anticipate making many claims. For example, a driver with a long – standing clean driving record may opt for a high excess to save on monthly premium costs.
Discourages Small Claims: A high excess can act as a deterrent for filing small, insignificant claims. Since you have to pay a large amount out – of – pocket, you’ll think twice before making a claim for minor damages. This not only helps in reducing the administrative burden on the insurance company but also prevents your insurance premium from increasing due to a claim history.
Disadvantages
High Out – of – Pocket Costs: The most obvious disadvantage of a high excess is that you’ll have to pay a large amount of money upfront in the event of a claim. If you’re involved in a major accident and the cost of repairs is substantial, the high excess can put a significant strain on your finances. For example, if you have a \(2,000 excess and the cost of repairs to your car is \)10,000, coming up with the $2,000 immediately can be a challenge for some people.
May Not Be Worth Filing Claims: In some cases, the cost of the damage may be close to or even less than the excess amount. If this happens, it may not be worth filing a claim as you’ll still have to pay the full excess, and it could potentially lead to an increase in your premium in the future.
How to Decide on the Right Excess Amount
Evaluate Your Financial Situation
Before choosing an excess amount, it’s essential to evaluate your financial situation. Consider how much money you can comfortably afford to pay out – of – pocket in case of a claim. If you have a healthy emergency fund and can easily cover a higher excess, then opting for a higher amount may be a good idea to save on premiums. However, if you’re on a tight budget and may struggle to come up with a large sum of money in an emergency, a lower excess may be more suitable.
Analyze Your Driving Habits and Risk
Think about your driving habits and the level of risk you face. If you’re a careful driver who rarely gets into accidents and drives mainly in low – risk areas, you may be able to take on a higher excess. On the other hand, if you have a history of accidents or drive in high – risk areas, it may be wiser to choose a lower excess to protect yourself from large out – of – pocket costs.
Compare Different Insurance Policies
When shopping for car insurance, compare the excess amounts and premium costs of different policies. Look for a balance between the excess and the premium that suits your needs. Don’t just focus on the lowest premium; also consider the excess amount and the overall coverage provided by the policy.
The Claims Process and Excess Payment
Filing a Claim
When you’re involved in an incident that requires you to make a claim on your car insurance, the first step is to contact your insurance company as soon as possible. Provide them with all the necessary details, such as the time, date, and location of the incident, a description of what happened, and any relevant information about the other parties involved (if applicable). The insurance company will then initiate the claims process.
Assessment of the Claim
The insurance company will assign a claims adjuster to assess the damage or loss. The adjuster will determine the cost of repairs or the value of the loss. They may also investigate the circumstances of the incident to ensure that the claim is valid and covered under the policy.
Excess Payment
Once the claim has been approved, you’ll be required to pay the excess amount. This can usually be done through various methods, such as online payment, bank transfer, or check. The insurance company will then pay the remaining amount of the claim, up to the limits of your policy.
Conclusion
In conclusion, car insurance excess is a fundamental aspect of car insurance policies. It determines the amount you’ll pay out – of – pocket when making a claim and has a significant impact on your overall insurance costs. By understanding the different types of excess, how it works in various claim scenarios, the factors that affect its amount, and the advantages and disadvantages of different excess levels, you can make an informed decision about the right excess amount for your car insurance policy. Whether you’re looking to save on premiums by choosing a higher excess or prefer the security of a lower excess, evaluating your financial situation, driving habits, and risk profile is key. Additionally, being familiar with the claims process and how the excess payment fits into it can help you navigate the process smoothly in case you ever need to make a claim. As the car insurance landscape continues to evolve, staying informed about the intricacies of excess and other policy components will ensure that you have the most suitable and cost – effective coverage for your vehicle.
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