When we speak of car insurance, some concepts may get mixed up by vehicle owners. For example, a voluntary excess may be mistaken easily for a deductible due to the resemblance between the two.
Though car insurance deductibles and excess work in a similar way, they’re not identical. But worry not, as this article attempts to clear up the confusion. Let’s look at deductibles and insurance side-by-side to understand how they work and their similarities and differences.
What is deductible?
A deductible in car insurance is the amount you must pay for repairs after an accident. It’s a predetermined amount that you agree to pay before your insurance company compensates for losses.
For example, if you have a car insurance policy with an RM500 deductible and your car is damaged in an accident, causing RM3,000 in damage, you are responsible for the first RM500; your insurance company will cover the remaining RM2,500.
How does a car insurance deductible work?
Unlike medical insurance, you don’t have to pay an annual deductible for car insurance. You are only liable for the amount stated in your policy every time you file a claim. Once you pay the specified amount, your insurer will cover the remaining repair cost.
It’s also common for your deductible to be applied when the payment is issued after the claim is approved. In this scenario, the insurer will deduct the amount from the approved claim amount. For example, if the approved claim amount is RM5,000, and your deductible is RM1,000, your insurer will pay RM4,500, as shown in the table above.
What is excess?
Excess is the initial payment you must make when filing an insurance claim before your insurer covers the remaining amount. It is often a fixed amount and made obligatory for policyholders under certain scenarios. Excess is typically divided into two types — compulsory excess and voluntary excess, respectively. More details on these two types are explained below.
How does excess work in car insurance?
A compulsory excess is a fixed amount (usually RM400) that insurers set for young, high-risk drivers, mostly those under 21 with a probationary (P) or learner’s (L) licence. A compulsory excess may also be required in situations where the vehicle damage was caused by unnamed drivers.
For example, if your children or siblings under the age of 21 run into an accident while driving your car, you will be required to pay a compulsory excess of RM400 while your insurer covers the remaining.
Voluntary excess, on the other hand, is an amount that the policyholder is willing to pay when making a claim from their insurance company. It works differently from compulsory excess despite sharing a similar condition.
Like compulsory excess, voluntary excess is also applied to vehicle owners under 21. However, it occurs under two additional conditions: the vehicle in question is at higher risk of theft, and the policyholder owns an expensive car. Unlike compulsory excess, voluntary excess is usually a certain percentage of the sum insured and not a fixed amount.
Deductible vs Excess
Excess and deductibles are often confused terms in car insurance because they work quite similarly, where both are a certain amount made payable by the policyholder. However, it’s important to note that the policy limit does not include the excess amount in situations involving an insurance policy with an excess. Unlike a deductible, the excess does not reduce the overall policy limit.
To illustrate, let’s imagine you have a policy limit of RM90,000 and a voluntary excess of RM10,000 and incur a loss of 50,000 due to an accident. In this case, you will pay RM10,000 toward the claim, and your insurer will pay the remaining RM40,000. Here, an excess and a deductible have the same effect because the amount made payable by the policyholder is similar to a deductible.
However, if you incur or are liable for a loss of RM100,000, an amount over your policy limit, your insurer will cover 90,000 of the cost while you pay the remaining 10,000. Here, the “excess” is not “deducted” from the claim payout but rather is payable by the policyholder, who remains liable for the portion of the loss in excess of the policy limit.
What’s the verdict?
A deductible and an excess may lead to similar outcomes in practical terms, but they are not inherently the same, as explained above. Learning to differentiate different concepts in car insurance is crucial to ensuring that you completely understand your car policy. We hope you find this information useful and that it helps clarify any doubts you may have about deductibles and excesses.
Bjak is one of Malaysia’s biggest insurance comparison websites, offering policies from over 10 brands. Visit Bjak today to get your free insurance quote!
Read more:
