What is an ‘Excess’?
An excess is the amount of expenses that must be paid out of pocket before an insurer will cover any expenses, if you decide to claim on your policy. If you claim on your policy your insurance company will be paying you out, so basically it’s a way of them paying a little less and keeping their costs down. Example – Vehicle insured for Rs. 1,00,000/-. Vehicle met with an accident and damage to the vehicle Rs. 20,000. The policy have a excess of Rs. 500, the insured will pay the first Rs. 500 and the insurance company pay the remaining Rs. 19,500.
What are the benefits of opting for ‘Excess’?
The higher the excess you agree to the lower your premiums will be.
Is it per incident, or per year?
Depending on the policy, the deductible may apply per covered incident, or per year. Example – In motor insurance (as in the above example), it’s per covered incident.
Types of excess?
Excess are two types –
1- Compulsory excess
A compulsory excess is the minimum excess payment the insurer will accept on the insurance policy. Minimum excesses vary according to the personal details, driving record and insurance company.
2- Voluntary excess
To reduce the insurance premium, the insured may offer to pay a higher excess than the compulsory excess demanded by the insurance company. The voluntary excess is the extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by the insurer, thus the insurer is able to offer you a significantly lower premium.