Insurance: What Is Car Excess

One of the most asked questions when it comes to car insurance is about car excess or deductibles.  Car excess is simply an amount on any car insuranceclaim that the insured must bear; anything more is paid for by the insurer.

For instance, if the total claim amounts to $2,000 and you opted for an excess amount of $600, you will have to pay for the $600 while your insurer covers the remaining $1,400.

What this means is that if the total amount of the claim is less than the excess, you will not get anything from the insurer.  In the above example, if your total claim amounts to only $500, you will have to pay for all of it.  You might think that this set up is unfair, but there are a few reasons why insurers impose an excess clause in your car insurance policy:

• To mitigate risks.  The higher the risk you have, the higher the stipulated excess would be.
• To ward off small claims from the insured. This benefits the insurer for two reasons.
• To minimize the company’s fixed administrative costs associated with each claim.  This administrative overhead is fixed, whether the claim amount is $1 or $10,000, so it would not be economical for the company to process every small claim.
• The number of claims to be processed would be greatly reduced, thereby giving the insurer more time to focus on substantial claims.
• By making the insured responsible for a portion of the damage or loss, they would be more careful and more responsible in driving their cars.
• To minimize or reduce the insurer’s liability.
• To enable an insurer to cover drivers with bad records or driving offences.

You can also use the excess to your benefits.  Opting for a higher car excess for one is a sure-fire way to reduce your premiums because it lowers your car insurance costs.  However, take note that the excess amount may be applied differently by various insurers according to different conditions, so ask your insurer for the best way to reduce your premiums by opting for a higher excess.