What is policy excess in insurance

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Policy Excess in Insurance: Understanding the Basics

As you go deeper into the world of insurance, you’re likely to encounter the term «policy excess.» This refers to the amount of money that you, as the policyholder, would need to pay towards a claim before the insurance company takes over. Understanding policy excess is important because it can impact the cost of your insurance premiums, as well as the level of coverage you receive. In this article, we’ll explore the basics of policy excess in insurance, and how it can affect your coverage.

What is policy excess in insurance

The Basics of Policy Excess

Policy excess is the amount of money you agree to pay out of your pocket towards a claim before your insurance policy comes into effect. For example, let’s say you have a car insurance policy with a policy excess of $500. If you get into an accident and the cost of repairs is $5,000, you would need to pay the first $500, and the insurance company would cover the remaining $4,500.

The purpose of policy excess is to encourage policyholders to take responsibility for smaller claims, while the insurance company covers larger claims. This helps to prevent policyholders from making numerous small claims, which could lead to increased insurance premiums.

Types of Policy Excess

There are two main types of policy excess: compulsory and voluntary.

Compulsory Policy Excess

A compulsory policy excess is a fixed amount that is predetermined by the insurance company. This means that you don’t have a choice in the amount of excess you pay. It’s typically applied to certain types of insurance policies, such as car insurance, and is designed to prevent policyholders from making small claims.

Voluntary Policy Excess

Voluntary policy excess, on the other hand, is an amount that you choose to pay towards a claim. This means that you have more control over your insurance policy and the amount you pay towards a claim. In general, the higher your voluntary excess, the lower your insurance premiums will be. This is because you’re taking on more of the risk, so the insurance company doesn’t need to charge as much for coverage.

How Policy Excess Affects Your Coverage

The amount of policy excess you agree to pay can have a significant impact on your insurance coverage. Generally, policies with a higher excess will have lower premiums, while policies with a lower excess will have higher premiums.

For example, if you have a car insurance policy with a high voluntary excess, you may find that your premiums are lower. This is because you’re taking on more of the risk, so the insurance company doesn’t need to charge as much for coverage.

On the other hand, if you have a policy with a low compulsory excess, you may find that your premiums are higher. This is because the insurance company is taking on more of the risk, and may need to charge more for coverage.

It’s important to find the right balance between your excess and your premiums. You should choose an excess that you can afford to pay out of your pocket, while also ensuring that you have enough coverage in the event of a claim.

Conclusion

Policy excess is an important aspect of insurance that can impact your coverage and premiums. By understanding the basics of policy excess, you can make informed decisions about your insurance policy and find the right balance between your excess and your premiums.

When choosing an insurance policy, it’s important to consider the amount of policy excess you’re willing to pay. While policies with a higher excess may have lower premiums, they also come with a greater financial risk. On the other hand, policies with a lower excess may have higher premiums, but provide more coverage in the event of a claim.

Remember to carefully review your insurance policy and speak with your insurance provider if you have any questions or concerns. By doing so, you can ensure that you have the right amount of coverage and policy excess to meet your needs.

It’s also important to note that policy excess is not the only factor to consider when choosing an insurance policy. You should also consider the level of coverage provided, any exclusions or limitations, and the reputation of the insurance company.

FAQs

1- What happens if I can’t afford to pay my policy excess?

If you cannot afford to pay your policy excess, you will not be able to make a claim on your insurance policy. Insurance companies require the excess to be paid before they take over the remaining costs of the claim. If you’re concerned about the affordability of your excess, consider opting for a lower voluntary excess, but remember that this may increase your premiums.

2- Are there any instances where I won’t have to pay the policy excess?

There can be instances where you may not have to pay the policy excess. For example, in car insurance, if another driver is deemed to be at fault for the accident and their insurer agrees to pay your claim, your insurer may waive the excess. However, this can vary based on the terms of your specific insurance policy, so it’s best to check with your insurer.

3- Can I change the amount of my policy excess after my policy has started?

Generally, insurance companies allow you to adjust your voluntary policy excess even after your policy has started. This, however, might have implications on your premium. If you raise your excess, your premiums might go down and if you lower it, your premiums may increase. It’s advisable to consult with your insurer for specific details about your policy.

4- Does the type of claim I make affect the policy excess I have to pay?

Depending on your insurance policy, the type of claim could potentially affect the policy excess that you have to pay. Some policies might have different excess levels depending on the type of claim, for instance, theft or accidental damage. You should review your insurance policy or contact your insurance provider to understand how different types of claims will affect your policy excess.

5- Does policy excess apply to all types of insurance?

Policy excess applies to many types of insurance including car, home, and travel insurance. However, the way policy excess works can vary between different types of insurance and different insurers. Some types of insurance may have more than one type of excess. It’s always important to check the details of your specific policy.

6- If I have multiple insurance policies with the same company, do I have to pay the policy excess for each one?

Yes, policy excess is usually applied per claim and per policy, not per policyholder. So, if you have multiple policies with the same company (for example, car and home insurance) and you need to make a claim on both, you would typically need to pay the excess for each policy.

7- If I choose a high voluntary excess, can I lower it in the future?

Yes, you can generally lower your voluntary excess in the future if you find that it’s too high and you’re unable to afford it at the time of a claim. However, reducing your voluntary excess will likely increase your insurance premiums. It’s always a good idea to discuss any changes with your insurance provider to understand the potential impacts on your policy and premiums.

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