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Excess

Excess is the amount of money you must pay when you make a claim on your insurance policy before the insurer pays the rest of the claim.

What is an Excess in Insurance?

Excess, sometimes referred to as a deductible, is the part of a claim that you have to pay yourself when you make an insurance claim. It is a fixed amount set by your insurance policy. For example, if your business has a policy with an excess of $500 and you make a claim for $5,000, you will pay the first $500, and your insurer will pay the remaining $4,500.

The purpose of an excess is to share the risk between you and the insurer. By agreeing to pay a small portion of any claim, you demonstrate that you are less likely to make small, frivolous claims. This can help keep your insurance premiums lower because it reduces the number of minor claims that the insurer needs to handle.

Key Components of Excess

There are three key components to understanding excess in insurance:

  1. Standard Excess: This is the basic amount that you agree to pay when you make a claim. It is usually specified in your policy documents.

  2. Voluntary Excess: This is an additional amount you can choose to pay on top of the standard excess. Opting for a higher voluntary excess can reduce your premium costs because you are taking on more of the risk.

  3. Compulsory Excess: This is an excess that the insurer imposes, often based on specific risk factors such as the type of business, the industry, or previous claim history. This excess is non-negotiable.

Types of Excess

There are different types of excess that might apply depending on the nature of your business insurance policy. Here are four common types:

Policy Excess

This is a general excess that applies to all claims made under the policy. It is the most common type of excess and is usually a fixed amount.

Event Excess

This excess applies when a single event leads to multiple claims. For example, if a storm damages several insured properties, the event excess will apply to all related claims.

Per Claim Excess

This type of excess applies separately to each individual claim you make. If you have multiple incidents requiring separate claims, you will pay the excess for each one.

Specific Excess

Some policies have specific excesses for particular types of claims or risks. For example, a higher excess might apply to claims involving theft or vandalism.

Exclusions and Limitations

Excesses can have exclusions and limitations based on your policy. These might include:

  • Different Excess Amounts: Some policies have different excess amounts for different types of claims. For example, the excess for a theft claim might be higher than for accidental damage.

  • Variable Excess: The excess amount might change based on certain conditions or circumstances, such as the age of the insured equipment or the location of the business.

  • Excess Waivers: In some cases, an excess waiver can be purchased or included in the policy. This means that under specific conditions, the excess may not apply. For example, if a claim is caused by a natural disaster, the insurer might waive the excess.