Insurance – What is excess?

One of the most frequently asked questions when it comes to car insurance is about deductible or deductible. Auto deductible is simply an amount on any auto insurance claim that the insured must bear; anything more is paid by the insurer.

For example, if the total claim is $2,000 and you opted for a $600 deductible, you must pay the $600 while your insurer covers the remaining $1,400.

This means that if the total claim amount is lower than the deductible, you will not receive anything from the insurer. In the example above, if your total claim is only $500, you must pay it all. You might think this set-up is unfair, but there are a few reasons why insurers include a deductible in your car insurance policy:

  • To limit risks. The higher the deductible, the higher the determined deductible.
  • To ward off minor claims from the insured. This benefits the insurer for two reasons.
    • To minimize the Company’s fixed administrative costs associated with each claim. This administrative overhead is fixed whether the claim amount is $1 or $10,000, so it wouldn’t be economical for the company to process every small claim.
    • The number of claims to be handled is greatly reduced, giving the insurer more time to focus on substantial claims.
  • Making the insured responsible for some of the damage or loss would make them more careful and responsible when driving their car.
  • To minimize or reduce the insurer’s liability.
  • To enable an insurer to cover drivers with a poor record or traffic violations.

You can also use the deductible for your benefit. Opting for a higher deductible is a surefire way to lower your premiums because it lowers your car insurance [] cost. Please note, however, that the amount of the deductible may be applied differently by different insurers according to different conditions. Therefore, ask your insurer about the best way to lower your premiums by opting for a higher deductible.

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