A motor insurance policy has some technical concepts which are often not understood by the common folk. As a result, when buying the insurance policy the concepts are ignored and at the time of the claim, this ignorance produces a loss. So, it is usually better to comprehend the important concepts of the car insurance policy policy. One particular technical and important concept is excess. Are you aware about it? Let's find out –
Excess in motor insurance policy
Excess represents that a part of claim that is payable on your part. In every instance of claim, you have to pay the required amount yourself. The insurance company would then spend the money for remaining amount.
Types of excess:Motor insurance policies have two kinds of excess- compulsory excess and voluntary excess
- Compulsory excess in car insurance policy – as is evident in the name, this excess is mandatorily borne on your part. The amount is bound and not within your control. Both car and two-wheeler insurance plans have a compulsory excess.
- Voluntary excess in car insurance policy – voluntary excess is a way to lower your premium. Sometimes, customers want to decrease their premium plus they choose voluntary deductible. Choosing voluntary deductible lowers the premium rate by making the customer bear a particular portion of the claim amount voluntarily.
Difference between compulsory and voluntary excess:
While compulsory excess is universal in all motor insurance policies, voluntary excess reaches the discretion from the policyholder. Therefore, selecting a voluntary excess earns a premium discount while compulsory excess doesn't.
Why the idea of compulsory excess?
The concept of excess does apply inside a motor insurance policy to dissuade you from making small, trivial claims. When you are aware that the extent of the excess is payable on your part, you would avoid making small claims inside your motor insurance policy. This could also save your no claim discount.
How compulsory and voluntary excess work?
Suppose, inside a car insurance policy policy, the compulsory excess is Rs.2000. On top of that, you choose a voluntary more than Rs.1000. When there is a claim of Rs.10,000, you would need to pay Rs.2000 from the compulsory excess and Rs.1000 from the voluntary excess. You, therefore, pay Rs.3000 as the insurance company settles your claim for Rs.7000.
When to choose voluntary excess?
Since you have no treatments for compulsory excess, you should be careful when choosing voluntary excess. If you're a good driver having a clean driving record and are careful, you can opt for voluntary deductible. Since the incidence of claim would be low given your ability to drive, you wouldn't need to bear high proportions of claims and can also earn reasonably limited discount.
Things to bear in mind before choosing voluntary deductible
Remember the following things before you decide to consider choosing voluntary deductible in your policy –
o Affordability
Voluntary excess denotes your out-of-pocket expenses. As such, be cautious when choosing the total amount. Since you would already have down to paying for the compulsory excess, choose voluntary excess only when the entire of these two excesses is reasonable for you.
o Economy
Though the associated voluntary deductible discounts might tempt you, assess the economy of selecting the voluntary excess. If the discount earned is lower than the out-of-pocket expense around the excess, selecting a voluntary excess isn't economical.
Understand the two excesses applicable in car insurance policy policies as they have an affect on the claim settlement. They represent out-of-pocket expenses which means you should be aware about both.
Check the below video to understand more about compulsory excess
