Insurance can sometimes feel like a complicated maze of terms and conditions, but understanding these concepts is crucial to making informed decisions about your coverage. One such important concept is “excess.” Whether you’re new to insurance or looking to deepen your knowledge, this article will walk you through everything you need to know about excess in insurance.

What is Insurance Excess?

Excess, sometimes referred to as a deductible, is the amount you, the policyholder, are required to pay out of pocket when making a claim before your insurance provider covers the rest of the costs. It’s a way of sharing the financial risk between you and your insurer. Excess can apply to various types of insurance, including car, home, health, and travel insurance.

For instance, if your car insurance policy has an excess of ₦50,000 and you make a claim for ₦200,000 due to an accident, you’ll need to pay the first ₦50,000, and your insurer will cover the remaining ₦150,000.

Also read Understanding Home Insurance

Types of Excess

There are different types of excess, and understanding them can help you better manage your insurance costs:

• Compulsory Excess: This is the standard excess set by the insurer. It’s a fixed amount that you must pay when making a claim, and it cannot be altered by the policyholder. The amount is usually determined by the insurer based on factors like the type of coverage and the perceived risk.
• Voluntary Excess: This is an additional amount that you, as the policyholder, can choose to pay on top of the compulsory excess. By agreeing to a higher voluntary excess, you can reduce your premium, which is the amount you pay for the insurance policy. However, this also means you will have to pay more out of pocket if you make a claim.
• Aggregate Excess: Unlike the standard excess, which applies per claim, aggregate excess applies across multiple claims within a specified period. For example, if your aggregate excess is ₦100,000, you may make multiple claims, but once your total out-of-pocket expenses reach ₦100,000, the insurer will cover the remaining costs for that period.
• Single Incident Excess: This applies to a single incident or event. For example, if your car is damaged in a storm and your house suffers damage from the same storm, you might have to pay the excess for each insurance policy if you file claims on both.

Why Does Excess Exist?

The primary purpose of excess is to prevent minor or frivolous claims, which can be costly for insurers to process. By requiring policyholders to pay part of the claim, insurers encourage more responsible behavior. For example, with a higher excess, you might be less inclined to claim for minor damage and instead reserve your insurance for significant incidents.

Excess also allows insurers to offer lower premiums. A higher excess reduces the insurer’s risk, which is often reflected in the cost of the policy.

Also read Understanding Group Life Insurance: Key Insights and Benefits

How Does Excess Affect Your Premium?

The relationship between excess and your insurance premium is straightforward: the higher your excess, the lower your premium, and vice versa. This is because a higher excess means you’re taking on more risk, so the insurer is less likely to pay out on smaller claims.

However, while choosing a higher excess can save you money on premiums, it’s important to consider whether you can afford to pay that excess if you need to make a claim. Striking the right balance between a manageable excess and an affordable premium is key.

Considerations When Choosing an Excess

When deciding on the amount of excess for your insurance policy, consider the following:

• Affordability: Can you afford to pay the excess amount in the event of a claim? It’s essential to choose an amount that won’t strain your finances during an already stressful situation.
• Frequency of Claims: If you anticipate making frequent claims, it might be worth choosing a lower excess, even if it means a higher premium. This way, your out-of-pocket expenses won’t accumulate too quickly.
• Value of the Insured Item: For high-value items, like a luxury car or a house, a higher excess might be a reasonable choice, as it could significantly reduce your premium.
• Risk Factors: Consider the likelihood of needing to make a claim. If you’re in a high-risk area for natural disasters, for example, you might want a lower excess to ensure you can manage the cost if you need to make a claim.

How to Find the Right Balance

Finding the right balance between your excess and premium is a personal decision. It’s about weighing the immediate cost of the premium against the potential future cost of paying the excess. Here are a few tips:

• Assess Your Risk Tolerance: If you have savings set aside and feel comfortable taking on more financial responsibility, opting for a higher excess could be a good way to lower your premium.
• Consider Your Claims History: If you’ve made several claims in the past, a lower excess might be a better choice to avoid high out-of-pocket expenses in the future.
• Shop Around: Different insurers offer varying excess options. Comparing quotes can help you find a policy that offers the best balance of excess and premium for your needs.

In conclusion, excess is a critical aspect of insurance that policyholders must understand. By grasping the concept of excess and its implications, individuals can make informed decisions about their insurance coverage and minimize potential financial burdens.

At Transparent Protection Ltd, we believe that knowledge is power. By equipping yourself with the right information, you can make decisions that protect your assets and provide peace of mind. Whether you’re a first-time policyholder or a seasoned insurance buyer, understanding excess is a vital step in navigating the insurance landscape in Nigeria.

Take advantage of the next article, subscribe now!

Have questions about claim settlements or need assistance with your insurance policy? Our team is here to help! Reach out to us via email at info@tplng.com or give us a call at 0905-776-6182. We’re committed to ensuring genuine claim settlements and supporting our valued members.

TPL, your satisfaction is our priority.