EXCESS IN A MOTOR INSURANCE POLICY

Q: What is excess?
A: Excess, also called deductible, is to the first amount of the claim which the insured has bear. If the insured has an excess of $500 and the total repair costs $3,000, then the insured has to pay $500 while the insurer pays the remaining $2,500.

Q: Why should there be an excess?
A: The insurer normally imposes some excess as this would serve as a form of co-insurance. With an excess, the insured would tend to be more careful because if a claims occur, the insured also has to be out of pocket and contribute towards the claim. In general, the higher the excess, the more careful would be the insured and hence the lower risk of having a claim.

Q: Very often, I see terms such as Excess: $500 (Section 1 only). What does the “Section 1 only” mean?
A: Your insurance policy is divided into many sections. Section 1 normally covers own damage claim. When you buy a Comprehensive motor insurance policy, you are covered for own damage, ie if your own vehicle is damaged, you can get the insurer to pay for the damage, whether or not you are at fault. 

Thus, Excess: $500 (Section 1 only) means the excess applies to an own damage claim only. Take this scenario: If the insured hits another vehicle and his own vehicle’s damage is $6,000 and the third party’s damage is $8,000, then the excess of $500 shall only apply to his own damage, ie he pays $500 and the insurer pays $5,500 for his own damage of $6,000. For the third party claim, the insurer would pay the full amount of $8,000.

Q: In some cases, I see terms such as Excess: $500 (Section 1 & Section 2 separately). What does this mean?
A: Section 2 in the policy, on the other hand, deals with third party claims. So if there is an excess on Section 2 as well, it means if there is any third party claim payable this excess shall apply. 

Using the same example above, the insurer pays $500 and the insurer pays $5,500 for his own damage of $6,000. For the third party claim, the insured has to fork out also $500 while insurer would pay $7,500 for a claim of $8,000.

Q: What if I see: $500 (All claims). What does this mean?
A: It means the total excess applicable for every accident. Using the same example above, the insured pays an excess $500 while the insurer pays $13,500 (the sum total of $6,000 and $8,000, less the excess of $500).

Q: Is it common to have excess for “Section 1 & Section 2 separately” or on a “All claims “ basis?
A: No. Such excess is not common. The insurer would normally impose such excess for special cases, eg when the vehicle is a high performance or luxury vehicle or when the insured’s profile is not favourable.