Motor insurance is a coverage which is taken for cars, trucks and other vehicles that ply on roads. The main objective of such insurance is to give protection against physical damage or loss from natural or man-made calamities. In some countries, it is mandatory to have a motor insurance in order to ply a vehicle on road. It is necessary to buy motor insurance as it not only gives financial protection but also covers third party damages. Some insurers offer their policyholders other utilities such as depreciation cover, engine protection cover, 24×7 road side assistance, etc.
What Is Excess Insurance?
Insurance companies allow their customers to share a part of the risk associated with the policy which is known as the “excess” or “deductible”. This is a pre-determined amount of the claim which the insured bears. So, when claim arises, the insured would have to pay up this excess amount and the balance amount will be passed as claim from the insurance company.
Types Of Excess Insurance
1. Single policy – It covers the excess on the insurance policy only.
2. Lifestyle policy – It covers the excesses on a number of different policies.
What Is Motor Insurance Excess?
Motor insurance excess is the amount you are required to pay at the time of claiming your policy. Motor insurance companies make their customers to share a part of the risk associated with the insured vehicle which is to be borne by them when the claim arises.
Compulsory Motor Insurance Excess
The compulsory excess is also called compulsory deductible or mandatory excess. The insurance company or the insurance regulator mandates the rates here. So, every motor insurance policy has this clause. An amount is deducted by insurance companies on each claim you made. This amount depends upon the type of vehicle, driver’s age and driving experience. Claims are paid out only after deducting such amounts.
This clause is mainly made mandatory to encourage good driving behavior and discourage small claims.
Voluntary Motor Insurance Excess
Voluntary excess is optional unlike compulsory motor insurance. This may be opted for over and above the compulsory motor insurance excess. It will only be deducted if the insured is willing to bear voluntarily. You can lower the cost of your insurance by increasing this voluntary excess. But you must remember that you will have to pay both compulsory and voluntary excess in case a claim arises.
Why You Should Opt For Voluntary Excess?
You might wonder whether to opt for voluntary excess or not. It is a fair question. But there is a simple answer – voluntary excess reduces the premium payable by you, on the policy. This reduction is on the “own damage” part of premium payable. As higher the voluntary excess you opt for, so higher will be your premium reduction and so will be the risk. But compulsory excess does not offer you such reductions. If you are a young driver, it is advisable that you do not opt for voluntary excesses pertaining to your inexperience in driving and financial conditions.
Things To Consider While Choosing Voluntary Excess
1. Look at your budget and analyze your paying capacity.
2. Have confidence on your driving skills.
3. You must be careful. Sometimes accidents happen with no fault of our own.
4. Keep in mind that if a claim arises, it would be a sudden expense.
5. Evaluate and prepare for liquidity in advance.
Should You Increase Your Voluntary Excess?
It is like a gamble. It depends on you and how less likely are you to make a claim. The higher amount you choose to pay as voluntary excess, the higher the bet. If you think of yourself as a good driver and are confident enough not to involve in any sorts of accidents on the road, you might take this risk. Although remember that in some cases, where accidents happen, total excess might be equal or even exceed the cost of repairing your vehicle. So it is you who has to decide whether it is worth to make a claim or not. Irrespective of your decision to make the claim, you must inform your insurer about the accident.
Generally, excess protects you from paying a larger sum of money by making you pay a part of claim up front. You can refuse to pay the excess but that would mean you will end up paying more as premiums. Thus, the motor insurance excess you pay also helps in keeping your monthly premiums down. You even get effective discounts by contributing a certain amount voluntarily. Insurance companies give a choice to their insured which is from paying higher premiums or taking up excesses.
The Bottom Line
It may seem to be a difficult task to decide or settle on to the right excess or deductible. It is advisable that you monitor your budget for insurance premiums and analyze your driving profile before you make a decision. These two aspects would serve as an indicator to decide on the excess. It would be good if you opt for voluntary excess. But you need to be able to raise money at any point of time equivalent to the voluntary excess on your motor insurance policy.