Excess payments are an important aspect of car insurance policies, but many policyholders may not fully understand how they work. In this article, we will provide essential information about excess payments and how they can affect your car insurance policy.
What is an excess payment?
An excess payment, also known as a deductible, is the amount of money that you agree to pay out-of-pocket in the event of a claim on your car insurance policy. For example, if you have a $500 excess payment and a claim of $1,000, you will be responsible for paying the first $500 and the insurance company will cover the remaining $500.
Excess payments are typically a requirement for car insurance policies and are used to lower premiums. The higher the excess payment, the lower the premiums will be. However, this also means that you will be responsible for paying more out-of-pocket in the event of a claim.
How do excess payments work?
Excess payments typically apply to specific types of claims, such as collision or comprehensive coverage. For example, if you have a $500 excess payment and you make a claim for collision coverage, you will be required to pay the first $500 of the claim before the insurance company covers the remaining amount.
Excess payments may also apply to multiple claims within a policy period. For example, if you have a $500 excess payment and you make two claims within a policy period, you will be required to pay a total of $1,000 before the insurance company covers the remaining amount of the claims.
In some cases, excess payments may not apply to certain types of claims. For example, some policies may have a zero excess payment for theft or fire damage. It is important to carefully review your policy to understand which claims are subject to an excess payment and which are not.
Can you waive an excess payment?
In some cases, you may be able to waive your excess payment in exchange for higher premiums. This can be a good option if you are not comfortable with the idea of paying a large out-of-pocket expense in the event of a claim. However, it is important to keep in mind that waiving your excess payment will generally result in higher premiums.
How to choose the right excess payment
Choosing the right excess payment can be a balancing act between keeping your premiums as low as possible and being prepared to pay out-of-pocket in the event of a claim. Here are a few tips for choosing the right excess payment:
Consider your financial situation: If you have a tight budget, a higher excess payment may be a good option to keep your premiums as low as possible. However, if you have more disposable income and can afford to pay a higher premium, a lower excess payment may be a better choice.
Think about your driving habits: If you are a careful driver and do not get into many accidents, you may be comfortable with a higher excess payment. On the other hand, if you are prone to accidents or drive in risky areas, you may want to consider a lower excess payment to reduce your out-of-pocket expenses.
Check with your insurer: Some insurers may have minimum excess payments for certain types of coverage, such as collision or comprehensive. Be sure to check with your insurer to understand the options available to you.
Review your policy carefully: It is important to thoroughly review your policy to understand which claims are subject to an excess payment and which are not. This will help you make an informed decision about the right excess payment for your needs.