What is Insurance Deductible?
Insurance deductible refers to an agreed amount that policyholders need to pay when filing a claim. Let’s say you accidentally collided with another car in a supermarket parking lot. In this situation, your insurer will cover the repair costs, but you’ll have to pay a predetermined amount as an insurance excess before they step in. It’s important to note that almost all insurance policies, except life insurance, require a deductible. When purchasing your policy, your insurer will decide on a mandatory deductible amount, which can be adjusted based on their discretion. Generally, if you choose to pay a higher excess amount, your monthly premiums will be lower. This balance between your monthly costs and how much you can afford to pay in case of an accident is crucial.
Mandatory Deductible vs. Voluntary Deductible
There are two types of deductibles: mandatory and voluntary.
Reading: What does excess mean on insurance
Mandatory Deductible: This is the minimum amount set by your insurer, based on various factors such as your age and driving record. It’s the lowest amount you can accept as your deductible.
Voluntary Deductible: As the name suggests, this deductible is decided by the policyholder and added to the mandatory deductible set by the insurer. Opting for a higher excess amount will usually result in lower monthly premiums. However, remember that you’ll have to pay more upfront if you file a claim. So, make sure you can afford the amount you agree to pay.
It’s important to understand that both the mandatory and voluntary excesses need to be paid at the start of a claim.
How Does Insurance Excess Work?
To better understand insurance excess, let’s consider an example. Suppose you have a home repair bill worth £1,000. Your mandatory excess is £150, and you’ve agreed to pay a voluntary excess of £200. This means you’ll have to pay the entire excess amount of £350, and the insurance company will cover the remaining £650.
It’s worth noting that in most cases, you’ll need to pay the excess even if you’re not at fault. However, if your insurer is able to recover the excess from the responsible party, they will reimburse you later.
Modifying Your Excess
While you cannot change the mandatory deductible amount on your policy, you have the flexibility to adjust or remove the voluntary deductible when purchasing or renewing your policy. It’s essential to carefully read the fine print before buying the policy to understand the specific excesses you’ll be accepting.
Keeping Track of Costs
To determine the excess amount you’ll need to pay when making a claim, refer to your policy details and terms and conditions. These documents will provide all the necessary information regarding your excess.
Excesses at Home
Home insurance covers a wide range of accidents and issues, each with its own standard excess level. Keep in mind that we’re referring to mandatory excess here. If you’re willing to pay more in case of an accident, you can opt for an additional voluntary excess.
For instance, if a pipe bursts in your home, it would be categorized as a ‘leakage of water’ claim, with a mandatory deductible of £450. Similarly, if your property experiences a sink, the mandatory deductible can go up to £1,000, depending on your property history or location. When deciding the level of voluntary excess, consider these factors.
Excesses on the Road
When it comes to car insurance, the cost of the mandatory excess depends on factors like age, car value, and claims history. Additionally, there is usually a small deductible for windshield damage.
For our auto insurance policies, the standard deductible for third party, fire and theft cover is £250. For comprehensive policies, the default deductible is £350, but you can choose any amount between £150 and £1,050.
There are certain scenarios where you don’t have to pay the excess, such as when dealing with an uninsured driver and being able to provide their name, contact details, and vehicle registration. Similarly, if someone else files a claim against you, you may not be required to pay the excess. However, there are still instances where you’ll have to pay upfront. So, always ensure that the level of excess you’ve agreed to is an amount you can afford, regardless of your driving skills.
Understanding insurance excess is crucial for every policyholder. By comprehending your deductible options and knowing how it works, you can make informed decisions when purchasing or renewing your insurance policies.