Excess vs Deductible
Insurance is essential in order for individuals and businesses to protect themselves from unforeseen losses and damages. Individuals can decide how they would like certain aspects of their insurance policy to be structured. The amount that will be paid as a deductible can be decided, and that will determine premium payment. The insured can also decide to take on an excess insurance policy to cover extra damages. The article offers clear explanations of these terms with examples, shows how these terms are similar and different to one another.
What is Deductible in an insurance policy?
The deductible in an insurance policy is the amount of funds that need to be paid out by the insured before the insurance company pays out the rest of the claim. When a claim is made, the individual first needs to pay the insurance deductible (this ensures that the insured puts forward a portion of their own funds to cover losses) and then the insurance company will step in and pay for the rest of the loss or damage. Deductibles are used by insurance companies to keep the insurance costs low. This happens because a deductible will reduce the number of claims made by people as it will encourage them to cover smaller losses and damages on their own. This will leave insurance providers with more funds to cover the much larger damages and losses. The insured can decide whether they would like to take on a larger or smaller deducible; but a higher deductible will result in a lower premium, and a lower deductible will result in a higher premium.
What is Excess Insurance?
Excess insurance will act as an additional insurance coverage to the primary insurance purchased to cover primary losses. A person may be faced with a situation in which they incur losses that go way beyond what is covered in their primary insurance policy. In this case, the insured will have to bear the rest of the loss on their own, which can be quite expensive. If in case the losses incurred exceed the limits set in the primary insurance policy, an excess insurance policy can be taken out to cover the rest of the damage and loss. In order to obtain excess insurance, the policy holder will have to pay the insurance deductible on the excess insurance policy. The disadvantage is that not everybody will be able to afford a second insurance policy and can be left cash strapped with large losses and from damages that cannot be recovered.
Deductible vs Excess
There are a number of differences between a deductible and excess insurance policy. A deductible is the amount that must be borne by the insured before the insurance company will pay out the remaining amount of the claim. Excess insurance is an additional insurance policy that is taken out to cover losses that surpass the limits of the primary insurance.
There are, however, instances in which a primary insurance policy can be considered as a deductible since excess insurance does not come into effect until the limits of the primary insurance policy have been surpassed.
Summary:
Difference Between Deductible and Excess
• The deductible in an insurance policy is the amount of funds that need to be paid out by the insured before the insurance company pays out the rest of the claim.
• Excess insurance will act as an additional insurance coverage to the primary insurance purchased to cover primary losses.
• There are instances in which a primary insurance policy can be considered as a deductible since excess insurance does not come into effect until the limits of the primary insurance policy have been surpassed.