Our Resident expert car insurance specialist has written a great article on Understanding Car Insurance Excesses (US Deductibles)
For new drivers especially, the terms excess and deductibles can be very confusing.
In a typical car or motor insurance policy, the term deductible or excess (UK term) is often described as the portion of any claim that is not covered by the insurance provider.
In reality the excess is the amount you are always going to have to fork out regardless of what the insurer may pay out, in the event of any claim you make.
For that reason you may also see the term used with the expression – the first portion of the claim.
While true to a point this view of an excess is limited to a very strict definition of compulsory excesses applied to a policy to limit the insurance companies liability and moreover to discourage claims.
The logic behind this is simple.
If for example you were inclined to claim for some damage to your car that costs 500 to repair. If you make a claim, not only will you have to pay the excess of say 250 out of the total cost, but you will also lose a large proportion of your no claims discount or bonus when you come to renew the policy the following year. Therefore it is not always in your interests to claim, especially if the excess is high.
However a car insurance policy excess, when voluntary, is much more than a claims control mechanism. If used properly, it is effectively a useful tool that allows the prospective policyholder choice and control over how much of the risk he is willing to take upon himself.
Motor Insurance Excess and Deductible Types
Car Insurance Excesses and deductibles can be applied at either policy level, which means that the excess amount is applicable to all claims made on the policy, or at sectional, risk or premium class level.
For example, an additional risk of windscreen insurance cover would normally have its own excess amount payable in the event of any windscreen claim.
Car Insurance Excesses and deductibles are either fixed or variable by either the prospective policyholder or the motor insurance underwriter.
Policy level excess amounts are invariably of the fixed excess type while at risk and premium levels, excess amounts are set either automatically by the system in response to a rating factor such as the Proposal’s age, or set by the user such as the voluntary excess level.
How To Set Your Voluntary Excess Level
Determining the level of voluntary excess that is right for you is best answered by yourself by honestly considering the following?
Are you looking to save money on car insurance premiums by taking on more or the risk yourself?
Do you have the money to cover the larger excess should you need to make a claim?
Does your style and history of driving make it more likely that you will have an accident or claim in the future?
Would the cost of repairs to your car in the event of a claim be so large that the highest voluntary excess would not make a lot of difference to the size of the payout, but would make a significant difference to the premium quoted?
Are you a risk seeker or risk averse?
It is possible to make huge saving on premiums quoted by adjusting your excess levels!
However, there are elements of gambling in all forms of insurance, in fact insurance could be rationally viewed as one large useful community casino.
Excesses and deductibles allow you to take on elements of risk. Think before you gamble!