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A Comprehensive Guide to Excess in Car Insurance

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Car insurance is necessary for all car owners, as it provides financial protection in the event of accidents, thefts, or damages to the vehicle. Excess is a term used in car insurance policies, which refers to the amount that the policyholder is required to pay before the insurance company covers the remaining cost. This guide will provide a comprehensive overview of excess in car insurance.

Excess in car insurance

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What is Excess Insurance?

Excess is a fee that the policyholder has to pay in case of a claim. The amount of excess is predetermined in the policy, and the policyholder must pay it before the insurer covers the rest of the claim. For example, if the excess amount is $500, and the claim amount is $5,000, the policyholder will have to pay the excess of $500, and the insurance company will pay the remaining $4,500.

There are two types of excess – compulsory excess and voluntary excess. Compulsory excess is the minimum amount that the policyholder has to pay, and it is set by the insurance company. Voluntary excess is an amount that the policyholder agrees to pay voluntarily in addition to the compulsory excess, to reduce the premium of the policy.

How does Excess work?

When a policyholder makes a claim, the insurer deducts the excess amount from the total claim amount. The policyholder must pay this excess amount before the insurer processes the claim. The remaining amount of the claim is then paid by the insurance company. If the claim amount is less than the excess amount, the policyholder will not receive any payment from the insurance company.

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For example, if the excess amount is $500, and the claim amount is $300, the policyholder will have to pay the full claim amount of $300, as it is less than the excess amount. However, if the claim amount is $800, the policyholder will have to pay the excess amount of $500, and the insurer will pay the remaining $300.

Advantages of Excess

The main advantage of excess is that it helps to reduce the cost of car insurance premiums. By agreeing to pay a higher voluntary excess, policyholders can reduce their premiums significantly. This can be particularly useful for young or inexperienced drivers who may face higher premiums due to their lack of driving experience.

Another advantage of excess is that it helps to reduce the number of small claims made by policyholders. Small claims can be costly for insurers, as they require the same level of administrative work as larger claims. By requiring policyholders to pay a compulsory excess, insurers can discourage them from making small claims, which can help to reduce the overall cost of insurance.

Disadvantages of Excess

The main disadvantage of excess is that it can be a significant financial burden for policyholders, particularly if they have to pay a high excess amount. This can be particularly problematic if the policyholder has to make multiple claims in a year, as they will have to pay the excess amount each time.

Another disadvantage of excess is that it can deter policyholders from making claims, even if they are entitled to do so. This can be particularly problematic if the policyholder has suffered significant damages or injuries and requires financial support from the insurer.

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Conclusion

Excess is an essential component of car insurance policies, as it helps to reduce the cost of insurance premiums and discourages policyholders from making small claims. However, it can also be a significant financial burden for policyholders, particularly if they have to pay a high excess amount. When choosing a car insurance policy, it is important to consider the excess amount carefully, and to ensure that it is affordable in the event of a claim.

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