What is an Excess?
Most insurance policies include an Excess
Most insurance policies include the provision for an excess. An excess (also known as a deductible) is an amount the policy holder must pay if they proceed with making an insurance claim on their insurance policy. It’s the first amount payable by the policy holder in the event of a loss and is referred to as the uninsured portion of the loss.
Depending on the type of insurance policy held, an excess could be a dollar amount or a specified period of time, among other types. A policy’s excess can usually be found on the schedule of insurance and/or within the policy wording.
It’s important to review excesses when comparing and buying an insurance policy because they can be different between policies and insurers. For example, an insurance policy might be cheaper because of a higher excess. A policy holder should establish what they are prepared to incur as an excess if they need to make an insurance claim because if the excess is high, they might not be financially positioned to pay the excess. But, depending on the policy and the insurer, increasing an excess is often a good way of reducing the cost (premium) of an insurance policy. Some insurers may also allow you to pay more premium to decrease your excess.
An insurance policy may have a standard excess which is the policy’s normal excess payable in the event of a claim. A policy may also contain a voluntary excess which is when the policy holder opts to increase their excess which replaces the standard excess. An insurer may also impose an excess which means the insurer can change the standard excess to a higher amount which is often relates to underwriting and risk information. Sometimes, if there is a concern, a higher risk or a trend in claims by a policy holder, an insurer may impose a higher excess to reduce the amount of smaller claims in order to offer the insurance policy.
It’s also important to understand that certain policies may contain multiple excesses. A typical motor vehicle insurance policy is a good example of this. There may be a standard excess, an inexperienced driver excess or an age excess, among others.
In some situations, an insurer may waive an excess or there might not be an excess payable at all. Some policies and some insurers may not require an excess to be paid by a policy holder if they meet certain criteria. For example, a motor vehicle insurance policy excess might not be payable if the insured driver was not at fault and if they can provide certain information to the insurer such as the name, address, vehicle details and registration number of the at fault driver. In these situations, the insurer might be able to claim back their costs from the at fault person or their insurer.
Excesses are usually part of most insurance policies and help keep premiums lower by having the policy holder absorb or contribute to part of the loss. As mentioned above, it is important to review your insurance policy’s excesses to ensure they are affordable. It’s also important to review excesses when comparing policies because premiums can differ based on excesses. Always check the schedule of insurance and policy wording for excesses.
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