Demystifying Insurance Terminologies: Excess/Deductible

“Excess,” commonly referred to as a “deductible,” is a term that you will encounter when you insure your motor vehicle, home or business.  The term may seem puzzling at first glance, but it is important to understand it as it can significantly impact your financial responsibilities and the extent of protection your insurance provides.

Excess/deductible represents the amount that a policyholder is required to pay out of his/her own pocket for each claim made before the insurance company steps in to cover the remaining expenses. 

Here’s an example how it works:

• Your policy excess is 5% of the sum insured. 
  • Your motor vehicle is insured for $1,000,000.
  • Your vehicle was involved in a crash resulting in a repair bill of $200,000.
  • The excess would be 5% of the insured value of $1,000,000 which would be $50,000.
  • You would absorb $50,000 of the $200,000 repair expenses while the insurance company would pay the difference of $150,000*.

*Conditions apply

Excess/deductible is an integral part of insurance policies and serves three purposes:

1. Reduces Costs – Insurance companies use excess as a means to mitigate their risk and reduce the overall cost of insurance policies. By having policyholders contribute a portion of the claim amount, insurers can offer more affordable premiums.

• Eliminates Small Claims – Filters out minor claims that may not justify the administrative efforts and expenses incurred by both the policyholder and insurer.

This allows the insurer to focus their resources on more substantial claims.

• Promotes Responsible Behaviour – By requiring policyholders to absorb a portion of the costs of a claim, in the case of motor insurance, excess promotes safe driving practices and discourages reckless behaviour, ultimately benefiting both the policyholder and insurer.

The next time you encounter the term, “excess”/deductible” in your insurance policy, you will know exactly what it means and understand why it is essential.

At JN General Insurance, we are committed to clarifying insurance concepts so you can make informed choices about your coverage.