Car Insurance Excess: Meaning Explained | Car Insurance Excess Guide
Understanding How Car Insurance Excess Affects You
Words: 1560 Time: 9 minutes
Read this guide to help you choose the right car insurance excess amount that works for you.
Car insurance excess (also known as deductible) is a term you might always see on car insurance policies, and you might have some idea of what it is, but always wanted to find out more about it.
- What exactly is car insurance excess?
- How does it work?
- How much excess in car insurance do you have to pay?
- How does excess affect your car insurance premiums?
- When do you have to pay car insurance excess?
Whether you're a new driver shopping for car insurance or an experienced car owner looking to understand your existing coverage better, this guide will answer all these questions and equip you with the knowledge you need to make better informed decisions when it comes to your car insurance coverage.
What does the Term “Excess” in Insurance Mean?
In simple terms, “excess” in insurance refers to a certain amount of money that policyholders need to pay out of their own pocket before their insurance coverage kicks in.
The point of this is so that policyholders take on some of the financial risk as well as the responsibility to take care of small damages, while the insurance company aims to take care of claims of a much more significant value.
What Is Excess in Car Insurance?
Car insurance excess, also known as a car insurance deductible, is what you first have to pay towards a claim, before your insurance coverage even takes effect.
When you make a claim for damages to your vehicle, such as from a car accident or theft, the insurance company will assess the total cost of car repairs or the value of the loss.
The excess amount is what the insurance company will NOT be covering. So they will subtract (or deduct, hence the alternate term “deductible”) that predetermined excess amount from the total, and cover only the balance.
How Does Car Insurance Excess Work?
Let’s use an example situation to best understand how car insurance excess works:
Imagine that you have a car insurance policy with an excess or deductible of $500. If you get into an accident and the car repair costs amount to $3,000 in total, you would be responsible for paying the initial $500 (excess), and the insurance company would then cover the remaining $2,500.
Because of this, if the total repair costs come up to $250, for example, you probably wouldn’t find it necessary to file for such small claims, since it is less than $500.
It’s important to note that this excess amount is not always a fixed amount, it varies from company to company, and from policy to policy. And the amount of excess also affects the premium costs you pay upfront for your insurance. Understanding excess is therefore very important so you can choose the right car insurance excess amount that works for your risk tolerance, budget, and value of your vehicle.
Types of Car Insurance Excess: Compulsory VS Voluntary Excess
There are two major types of car insurance excess:
Compulsory Excess, and
Compulsory excess: This is a fixed excess amount that the insurance company sets for your policy, and it is based on several factors, such as your car model, and your age, and driving experience. This is a non-negotiable amount within your car insurance policy.
For example, expensive cars would carry a higher compulsory excess than a cheaper model car; and drivers below the age of 30 are usually required to pay an additional excess amount.
Voluntary excess: This is an amount of money that you choose to add on top of the compulsory excess if and when you make a claim. As the name suggests, you get to decide how much you want to pay as your voluntary excess.
For example, in the above example of a total bill of $3,000 in repairs costs, if your compulsory excess is $500, and your voluntary excess is $500, then your out-of-pocket excess payable would be $1,000, while your insurance company would pay the rest of the $2,000.
Why Pay Voluntary Excess?
Why then would anyone want to pay more excess instead of enjoying more money from an insurance claim?
Lower premium: The number one reason people might opt for voluntary excess is because it reduces your car insurance premium. By choosing to pay a higher excess amount, you demonstrate to the insurance company that you are willing to take on a greater share of the financial risk, and in return, they usually offer you a lower premium upfront.
Safe driver: If you consider yourself a safe driver, and have confidence in driving accident-free, you may choose to go with paying a higher voluntary excess and keep your premiums lower.
Low-risk customer: A higher voluntary excess incentivises you to handle small repairs out of pocket instead of making minor claims. This helps you to maintain a claims-free record, and shows insurers that you’re a low-risk customer. It will help you to obtain car insurance in future at more favourable terms and premiums than it would be for a high-risk driver.
Which Car Insurance Excess Should You Choose?
Now that you’re familiar with both what compulsory excess and voluntary excess mean, your next question might be: Which car insurance excess should I choose?
The best way to go about deciding is to consider the following three factors. Knowing your answers to these three questions will help you determine which car insurance excess is right for you:
Question #1: What is the value of your car?
If your car is relatively inexpensive or an older car model, it may be more cost-effective to opt for a higher voluntary excess, since the probable cost of repairing or replacing an older car may be quite manageable.
However, if you have a brand new car, and you want to keep it in tip-top shape, then you may require more financial help from the insurance company so that you can afford the necessary repairs or replacement if an incident occurs.
Question #2: What kind of a driver are you?
Think about your driving history, experience, and the likelihood of making a claim. If you’ve always been a cautious driver with a clean record, and usually drive in safe areas, then a higher voluntary excess might be a viable option.
If you’ve had your fair share of accidents, or you often drive in high-risk areas of dangerous weather conditions, a lower compulsory excess could be more appropriate to mitigate potential financial burdens. (Note though that your premium might not be as cost-effective, though!)
Question #3: What is your budget like?
Consider your comfort level and risk tolerance when it comes to paying out of pocket in the event of an incident. Are you financially prepared to take on a huge bill in the form of a higher excess amount? Or would you rather limit your personal expenses in the event of a claim? You should also take into consideration if you would rather save money on premiums now, or potential future costs.
All in all, it will depend on you. Both excess types can help you make sure you're driving safely and securely with an insurance plan covering all the bases.
To better understand which car insurance excess works best for you, feel free to contact our DirectAsia Insurance agents at 6665 5555 or drop us a line here.
When Do You Pay the Car Insurance Excess?
In general, you never have to pay the excess if nothing happens, but only when you’re making a car insurance claim.
In an event of a car crash or a fire incident, for example, you may be held accountable for causing damage to your own car, in which case you will be liable to pay the car insurance excess.
If it is a car accident that involves a few cars, your insurance company should assist you in figuring out who is responsible and liable for the accident, what factors are involved, and going through your policy documents with you. If it is evident that the harm to your vehicle was done by another party and they take responsibility for it, the excess can be waived.
When you choose to go with the best car insurance company like DirectAsia Insurance, you can count on us to provide you with a claims expert to guide you through the entire claims process. This has helped our customers so much that we have exceeded a 98% customer satisfaction score.
Pick the Best Car Insurance Excess That’s Right for You!
Ultimately, no matter whether you opt for compulsory excess or voluntary excess, having a sound vehicle insurance policy will save you a lot of money in the event of an incident.
Choosing a reliable insurance company that offers you the best deal for your vehicle and personal preferences is the best option.
With DirectAsia Insurance, you can be confident in our agents lending a listening ear to understand exactly what you need, and to help clear up any confusion regarding our comprehensive car insurance policies or anything else you want to know about car insurance excess.
With DirectAsia’s offer of cheaper insurance options in Singapore, manageable excess policies, a claims specialist to help you with your claims, and our high rate of customer satisfaction, you can enjoy peace of mind knowing you’re in good hands when you’re out on the roads. Reach out to us now!
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