Understanding excess: Why are you paying it and what does it do?
An excess or deductible in insurance including travel insurance is the amount you must pay towards any claim that you make on your policy. The remaining amount is paid by the insurer up to the limit of the benefit.
The excess will either be a set amount stipulated in the policy’s Product Disclosure Statement or it will be a flexible amount that you can opt to increase or decrease, depending on how much you want to pay vs how much your premium costs.
Why do you pay an excess?
When you buy travel insurance with an excess option, you are assuming part of the risk on behalf of the insurer in return for a lower premium. There arebut this means you are paying more upfront.
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There are usually two types of excess and these are:
- Standard excess – the set amount stipulated by the insurer that must be paid towards any claim.
- Voluntary excess – an excess amount chosen by you that you can increase if you want to lower your premium or decrease or waive altogether if you don’t want to pay anything in the event of a claim.
How to save with a variable excess
The trick with choosing a voluntary excess is to make sure you increase it enough so that your premium becomes affordable, without increasing it to the point where you would have difficulty paying the amount upfront if you had to make a claim.
When you compare travel insurance policies, as you should always do, the excess is one of the first things you should look at, as it can save you money. Look at the excess in comparison to the benefit paid on a claim, as a high excess on an item where the benefit paid is low, such as luggage replacement for instance, is not good value for money, as you would end up paying the majority of the replacement cost yourself.
Another good way to save money on excesses, particularly if you travel frequently, is to take out an excess protection policy. This kind of insurance reimburses you whenever you make a claim that exceeds the excess amount on the policy.
And the good thing about it is that instead of taking out excess protection policies for each kind of insurance you have, such as home and contents, motor vehicle, health and travel insurance, you can take out one single policy that covers all of your main insurances and their excesses.
Most travel insurance policies cover the three main areas of risk. These are:
- Hospital and medical cover – this is always the most important, especially when you are travelling to a country with an expensive health care system such as Japan or the USA.
- Lost or stolen luggage and belongings – this can be a common occurrence, especially when visiting countries with high crime rates and it is one of the most frequent sources of claims on travel insurance policies.
- Trip delays and cancellations – this is particularly important if you have pre-paid some or all of your holiday travel and accommodation expenses.
Excesses vary within each area of cover and it is comparing these excesses that will help you determine whether a policy offers good value for money in your particular circumstances.
Can I get travel insurance with no excess charge?
A standard excess applies to all travel insurance policies, while you can often opt to pay an extra voluntary excess in order to enjoy reduced insurance premiums.
If you want to avoid paying excess charge altogether, some providers will offer a feature known as an excess eliminator. This allows you, for a small fee of around $15 to $25, to scrap the need to pay any excess when you make a claim.
How and when you pay an excess will depend on the policy and the insurer. Some insurers require you to pay the excess upfront before they will pay the claim, while others will simply deduct the amount of the excess and pay out the remainder of the benefit.
Some insurers will even waive the excess altogether, as in some car insurance claims, where you were not at fault and the insurer is able to recover the amount from the other party.
Does multiple claims mean multiple excess charges?
Another thing to look out for when comparing excesses is whether they are charged per claim or per area of cover. For example, a policy that charges per claim could end up costing you more if your luggage is stolen, as you would have to pay an excess on each claim you make (e.g. one for your luggage, one for your money or one for your passport).
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As this article has shown, excess is a normal part of insurance and needs to be factored into the overall cost of any policy. Just as an insurer takes a calculated risk on whether you are likely to make a claim on that policy, you are also gambling on the likelihood of having to pay the excess when you increase it to decrease your premium. So an excess can be seen as a way of you accepting a small portion of the risk yourself.