If you are in the process of buying a car insurance policy, then you have probably come across the term ‘excess’. This is one of the most important terms in motor insurance. However, at the same time, it is also not the easiest to understand. Keeping this in mind, the following article tell you what excess is, the two types of excess – compulsory & voluntary – and help you decide whether or not you should opt for the latter. Let’s jump straight into it!
What is excess?
To put it as simply as possible, excess is the amount you agree to pay towards any claim you make against your car insurance policy. It is like a cost-sharing agreement between you and your insurer. In case of claim, a portion of the claim amount (excess) needs to be paid by you, before the insurance company covers the remaining cost. Excess ensures that policyholders do not make claim for every little dink and scratch.
As mentioned earlier, there are 2 kinds of excess – compulsory and voluntary. The former is decided by the cubic capacity of the car and the latter is set by the policyholder, if they decide to opt for it. You might wonder why one would want to have additional excess in addition to the compulsory excess of the plan. Well, the concept is simple – the more excess you commit to, the lower the premium of your policy.
Since accidents are a rarity, opting for a higher excess allows you to pocket a good amount of savings every year. This is because you are sharing a higher level of risk with the insurance company. However, this does not mean that you opt for an overly excessive voluntary excess. This is because, if you do opt for a very higher amount of voluntary excess and some unfortunate event does happen, your out of pocket expenses will quite large!
When does one set the excess of the plan?
If you do opt for voluntary excess, it could indeed work out to be a smart and money saving decision. However, do note that the excess of the plan must be set when buying the plan. One can also opt for or increase/decrease the voluntary excess of the plan upon renewal. Most insurers would also allow policyholders to set or increase/decrease the voluntary excess mid-way through the tenure of the plan. This would have to be done by way of an endorsement.
If you wish to check the effect of a voluntary excess of the premium of your plan, you can use an online car insurance calculator. Most insurance companies will have this tool on their website. Just type in a few details about your car and it will give you a quotation on your car insurance policy. At this point, you can click on the voluntary excess option and enter your desired amount. The calculator will provide a revised premium quotation based on the excess amount you have entered. You can keep altering the excess amount until you are satisfied.
Ultimately, you need to decide whether you want to opt for voluntary excess or not. If you do, remember to set a very high amount to ensure you don’t end-up with a hefty bill in case of a claim. We hope this article has been helpful, good luck and all the best!