Car insurance is a critical aspect of responsible car ownership, providing financial protection in the event of accidents, theft, or damage. When purchasing car insurance, you may come across the term “excess,” which is an essential element of most insurance policies. Understanding excess is crucial as it can significantly impact your out-of-pocket expenses in the event of a claim. This article aims to explain what excess on car insurance is, its different types, how it works, and factors to consider when selecting the appropriate level of excess.
Defining Excess in Car Insurance
Excess, also known as the deductible, is the initial amount of money a policyholder must pay towards a claim before the insurance coverage comes into effect. It serves two primary purposes:
a) Discourage Small Claims: By requiring policyholders to bear a portion of the costs, insurers discourage filing minor claims, which could be administratively burdensome and lead to increased premiums.
b) Share Risk: Excess allows policyholders to share the financial burden with the insurer, which helps keep overall premiums more affordable.
Types of Excess
a) Compulsory Excess: This is the fixed excess amount set by the insurer, which all policyholders must pay in the event of a claim. It is non-negotiable and typically determined by factors like the driver’s age, experience, and the type of car insured.
b) Voluntary Excess: Policyholders have the option to choose a voluntary excess amount in addition to the compulsory excess. Selecting a higher voluntary excess often results in lower premiums, but it also means you’ll have a higher out-of-pocket expense in case of a claim.
c) Age Excess: In some regions, especially for younger or inexperienced drivers, an age excess may apply, adding an extra amount to the standard excess.
d) Inexperienced Driver Excess: Similar to age excess, this applies to drivers with limited driving experience and might vary depending on the insurer’s policy.
How Excess Works
Let’s consider an example to understand how excess works in a car insurance claim:
Suppose your car sustains damage in an accident, and the repair cost is $3,000. If your insurance policy has a compulsory excess of $500 and a voluntary excess of $300, the total excess would be $800. Here’s how the claim calculation would look:
Repair cost: $3,000
Compulsory Excess: $500
Voluntary Excess: $300
Total Excess: $800
Your insurer will only pay $2,200 ($3,000 – $800), and you will be responsible for the excess amount of $800.
Factors to Consider When Choosing Excess
When selecting the level of excess for your car insurance policy, several factors should be taken into account:
a) Financial Situation: Assess your ability to pay the excess amount out-of-pocket in case of a claim. Opting for a higher excess to reduce premiums might be cost-effective, but it could pose a financial strain when you need to file a claim.
b) Frequency of Claims: If you have a history of infrequent claims and prioritize cost savings, a higher voluntary excess might be suitable. However, if you expect to make frequent claims, it may be wiser to choose a lower excess to manage the financial burden better.
c) Car Value: Consider the value of your car. For older or less valuable vehicles, a higher excess might be reasonable, as the repair or replacement costs are generally lower.
d) Driving Experience: Young or inexperienced drivers might face higher excess amounts due to increased risk profiles. Evaluate the impact of age excess on your policy.
e) Policy Premiums: Evaluate the potential savings in premiums when choosing a higher voluntary excess. Compare different excess options to find the balance between premiums and potential claim costs.
Excess and No-Claims Bonus
Many insurers offer a “No-Claims Bonus” as a reward for policyholders who do not make any claims during a policy term. The bonus is typically a discount on the renewal premium and encourages safe driving practices and claim restraint. It is essential to understand how the no-claims bonus interacts with excess:
a) Protecting Your No-Claims Bonus: If you have accrued a substantial no-claims bonus, you may consider protecting it by choosing a lower voluntary excess. This way, even if you need to make a claim, your no-claims bonus remains intact.
b) Impacts on No-Claims Bonus: Filing a claim and receiving a payout may negatively affect your no-claims bonus, leading to higher premiums during the next policy term.
Claiming Excess Back
In some cases, if you were not at fault for the accident, and your insurer can recover the costs from the at-fault party’s insurance, you may be able to claim back the excess amount you paid. This process is known as “excess recovery” or “excess reclaim.” However, it is essential to check with your insurer about their specific policies regarding excess recovery.
Conclusion
Excess is a crucial aspect of car insurance that policyholders must understand to make informed decisions. It represents the amount you must contribute towards a claim before your insurance coverage takes effect. By choosing the right level of excess based on your financial situation, driving experience, and car value, you can strike a balance between affordable premiums and manageable out-of-pocket expenses. Additionally, taking into account the potential impact on your no-claims bonus can further help optimize your car insurance policy and ensure financial protection when you need it the most.
