Excess in insurance can come across as a tricky concept. It’s not uncommon to find people who may have heard of insurance excess but do not understand it well.
In simplest terms, insurance excess refers to the amount one contributes to a claim. If an insured makes a claim and the insurance company accepts it, they will then pay any repair or replacement costs that exceed the excess amount.
In this article, we will understand the concept of excess in insurance policies through their different types.
Different Types of Excess in Insurance
Excess is not a concept limited to a single line of insurance. It may be found in auto insurance, travel insurance, home insurance, health insurance, and even workers’ compensation insurance. According to Prescient National, excess in workers’ compensation covers claims above a specified dollar amount to protect employees against unexpected catastrophic losses.
However, there may be different types of excesses involved in all lines of insurance. Let’s look at them in detail.
Basic or Standard Excess
This type of excess is exactly what it sounds like. It would generally apply to any claim in an insurance policy. However, keep in mind that different policies come along with different kinds of excesses.
For instance – in the case of car insurance, there may be a standard excess of $400 along with certain age-related amounts for the driver. Even most home insurance policies come with an excess amount of $400. However, some policies may have a standard excess of $250.
It is important to review the policy documents and check the standard excess amount.
License and Age-Related Excess
Age and license-related excesses are commonplace in the case of car insurance policies. If you or any driver (of your car) is below the age of 25, this type of excess is applied in case there’s an accident involved.
As for the exact amount, this will vary depending on the age of the driver (at the time of the accident) and whether their name appears as a driver in the policy. Besides age, the license type will impact this insurance excess.
For instance – those holding an overseas, restricted, or learner’s license, will have additional excesses applied over their standard age-related excess. All these additional amounts will be mentioned on the policy schedule.
Voluntary Excess
This type of excess concept means that the insured gets to choose a higher amount (as excess) for a lower premium. Voluntary excess is most common among home insurance policies. This excess usually starts at $750 and may extend up to $5000, depending on the premium.
Voluntary excess is a solid option for those who do not claim much and are prepared to pay more towards their claim.
Imposed Excess
The insurer applies this type of insurance excess in the case of high-risk policyholders. Let’s take the example of home insurance. If the property is going to remain unoccupied for an extended period (say, 60 days or more), an imposed excess is applied.
It’s important to remember that this excess is only applied for the period the property remains vacant. Similarly, if the car you own is highly popular among thieves (due to a certain model or features), an imposed excess may be applied.
When Do You Need to Pay Excess?
The time for excess payment depends upon the type of claim. In most cases, you will need to pay the excess amount to the vendor or supplier directly. In case of an overall loss, the excess amount will be deducted from the settlement amount.
It’s important to mention here that the excess amount cannot be waived under any circumstance. Regardless of whether you or anybody else caused the damage, it must be paid as it applies to all claims.
Furthermore, the excess amount need not be borne by you if the damage is another person’s fault. For instance – suppose another car driver was responsible for vehicle damage. In such a case, you will not need to pay the excess provided the driver is identifiable (including their name, car registration number, and address).
Finally, let’s close by discussing where to find out the exact excess amount. The same is usually mentioned on the policy schedule. It is the document delivered to you when you first get your car or home insured.
The policy wording can also have details regarding the excess amount. It’s important to check both to avoid any surprises during the claims process.
