Understanding Car Insurance Excesses and Deductibles

For new drivers especially, the terms excess and deductibles can be very confusing.

In a typical car or motor insurance policy, the term deductible or excess (UK term) is often described as the portion of any claim that is not covered by the insurance provider.

In reality the excess is the amount you are always going to have to fork out regardless of what the insurer may pay out, in the event of any claim you make.

For that reason you may also see the term used with the expression – the first portion of the claim.

While true to a point this view of an excess is limited to a very strict definition of compulsory excesses applied to a policy to limit the insurance companies liability and moreover to discourage claims.

The logic behind this is simple.

If for example you were inclined to claim for some damage to your car that costs 500 to repair. If you make a claim, not only will you have to pay the excess of say 250 out of the total cost, but you will also lose a large proportion of your no claims discount or bonus when you come to renew the policy the following year. Therefore it is not always in your interests to claim, especially if the excess is high.

However a car insurance policy excess, when voluntary, is much more than a claims control mechanism. If used properly, it is effectively a useful tool that allows the prospective policyholder choice and control over how much of the risk he is willing to take upon himself.

Motor Insurance Excess and Deductible Types

Car Insurance Excesses and deductibles can be applied at either policy level, which means that the excess amount is applicable to all claims made on the policy, or at sectional, risk or premium class level.

For example, an additional risk of windscreen insurance cover would normally have its own excess amount payable in the event of any windscreen claim.

Car Insurance Excesses and deductibles are either fixed or variable by either the prospective policyholder or the motor insurance underwriter.

Policy level excess amounts are invariably of the fixed excess type while at risk and premium levels, excess amounts are set either automatically by the system in response to a rating factor such as the Proposal’s age, or set by the user such as the voluntary excess level.

How To Set Your Voluntary Excess Level

Determining the level of voluntary excess that is right for you is best answered by yourself by honestly considering the following?

Are you looking to save money on car insurance premiums by taking on more or the risk yourself?

Do you have the money to cover the larger excess should you need to make a claim?

Does your style and history of driving make it more likely that you will have an accident or claim in the future?

Would the cost of repairs to your car in the event of a claim be so large that the highest voluntary excess would not make a lot of difference to the size of the payout, but would make a significant difference to the premium quoted?

Are you a risk seeker or risk averse?

It is possible to make huge saving on premiums quoted by adjusting your excess levels!

However, there are elements of gambling in all forms of insurance, in fact insurance could be rationally viewed as one large useful community casino.

Excesses and deductibles allow you to take on elements of risk. Think before you gamble!

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A Brief Guide to Understanding Travel Insurance Excess

Trying to find the very best travel insurance can be daunting and difficult. Deciding between annual travel insurance and single trip deals, and even the issue of insurance excess is also likely to cause great confusion. This article may provide some clarification and guidance for prospective travellers.

Essential Insurance Information

Anyone confused by the technical insurance jargon need only really remember that policy excess refers to the expected level of initial payment (from the insured person) in the event of a claim. This will differ greatly, depending upon the level of excess that is agreed when registering for the policy. The insurance company will pay any remaining money, up to the agreed claims cap. Relevant information regarding the excess should be included in the policy document and kept for easy reference.

Additional Protection

As mentioned, the level of excess will vary depending upon what policy a customer chooses. Some insurers may demand as little as £20 in the event of a £500 claim, however others will expect much higher amounts. There may even be stipulations regarding the level of excess associated with different areas of the policy. In the event of theft the customer could have to pay £30 for legal assistance and £50 for the replacement of stolen goods. It’s worth bearing in mind that some cheaper single trip or annual travel insurance policies may have relatively higher levels of excess.

The Excess Waiver

Prospective travellers who are prepared to pay a little more may be given the option of an excess waiver. This means they aren’t required to part with any of their own money in the event of a claim. Annual travel insurance customers may take this option as a guaranteed means of enjoying peace of mind throughout the year, however it may be deemed unnecessary for those simply looking forward to a quiet weekend away! Anyone who requires further clarification on the issue of excess should contact their insurers or seek independent advice. It may be possible to ascertain the track record of companies with regards to insurance payouts.

Policy Excess Warning

Most insurance companies will be unwilling to upgrade existing customer policies and completely waive the excess. This is why it is so important to do comprehensive research and purchase the correct level of insurance in the first place. But it’s also worth checking if any policy waiver covers injuries sustained during extreme activities and the loss of personal belongings. Such issues are particularly relevant to annual travel insurance customers, as it may need to cover a range of destinations and purposes for travel.

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Essential Information About Car Insurance Excess Payments

An excess payment is the fixed contribution you must pay each time your car is repaired through your car insurance policy. Normally the payment is made directly to the accident repair garage when you collect the car. If your car is declared to be a write off, your insurance company will deduct the excess agreed on the policy from the settlement payment it makes to you.

If the accident was the other drivers fault, and this is accepted by the third party’s insurer, you’ll be able to reclaim your excess payment from the other person’s insurance company. But what if the other driver is uninsured?

All motorists know that it’s a legal requirement (under Section 143 of the 1988 Road Traffic Act) to have insurance for any damage they cause to third parties. But still many drive without insurance. An estimate of the incidence of uninsured driving in the UK is hard to come by and, for the obvious reasons, those drivers involved in breaking the law have every reason to keep quiet about it.

Calculations from the Department of Transport suggest that in the UK around 5% of vehicles are being driven without valid insurance. This group of people not only impose costs on honest motorists in the form of higher premiums, but their presence on our roads also represents a serious risk to other road users. Consequently, uninsured driving is increasingly being regarded as a major social problem.

But driving without insurance is not a victimless crime. If you have an accident with an uninsured driver and the accident wasn’t your fault, the repair costs will be paid for by the Motor Insurers’ Bureau that’s funded in its entirety by the industry, or by your insurer. Therefore, if you’re involved in an accident caused by an uninsured driver you’ll eventually get you car repaired but you’ll still have to pay the excess and there’ll be no one to reclaim your excess from.

What is a Compulsory Excess?

A compulsory excess is the minimum excess payment your insurer will accept on your insurance policy. Minimum excesses do vary according to your personal details and driving record and by insurance company. Today the average excess is around £100, but younger drivers could be faced with excesses of up to £500 – whilst more mature, experienced drivers with a good driving record, could be offered an excess of just £50.

So what is a Voluntary Excess?

In order to reduce your insurance premium, you may offer to pay a higher excess than the compulsory excess demanded by your insurance company. Your voluntary excess is the extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by your insurer, your insurer I able to offer you a significantly lower premium.

The garage has repaired my car but it won’t release the car too me until I pay the policy excess to them. Is this right?

Yes, that is normal practice. But make sure you inspect the car when you collect it. Satisfy yourself that the repair is perfect. Then make sure you keep their receipt for your excess payment as you will need this if you’re reclaiming against a third party’s insurance. And just in case there’s a dispute, it’s a good idea to make sure the repair garage gives you a repair schedule. This will list all the repairs that were made to you car.

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Car Rental and Insurance Excess Options

One of the most onerous and misunderstood aspects about car rentals today is the accident/insurance aspect of it. When you are renting a hire car the rental companies, almost without exception, will try, and sometimes very hard, to convince you that it is in your best interests to add on to the daily rental a collision damage waiver (CDW) cost. There are other names for it but they all mean exactly the same.

Firstly your common sense will tell you that if it is good for you, it can’t also be good for the company at the same time. So, what goes on here? Well, most companies, because of their exorbitant insurance premiums are virtually forced to self insure their vehicles. That means that they bear any accident costs themselves and offset that with the “CDW”. It is far cheaper for them to do it this way than pay the huge insurance premiums for every car. The CDW factor then does become extra profit for the companies in the main and that is why they seriously urge you to take it up. Incidentally, legally speaking, in Australia the precedents in law regarding accident liability is that it rests with the owner of the vehicle unless you are acting as an agent for the owner, and it would be highly unusual for the hirer to be acting as an “agent” for the owner.

Therefore it does require a lot of consideration as to whether or not you pay the extra to reduce your liability. Emotionally it is far less stressful to take the excess reduction and not be driving around with a high excess that has been deliberately inflated in order to convince you that the CDW is a good idea. Practically speaking though, it doesn’t take long for the CDW costs to add up and amount to more than paying the excess in the unlikely event you have an accident. Therein lays the dilemma!

Many people are under the mistaken belief that their normal credit card insurance will cover them for any accident excesses. This is not always the case as in many instances you are not covered for the excesses if the car rental company has offered you excess reduction. This is a very important point and one in which you must be absolutely clear on with your credit card company insurance.

So when the time comes to make your car hire booking, all the afore said needs to be considered carefully and a decision made as to whether or not you will be taking the CDW. Rest assured the car rental company will be pressuring you, in their own interests, to avail yourself of their offer.

Now, when the unfortunate does happen and you are involved in a car accident, there are several things to consider. Firstly I would be approaching the other driver or drivers, regardless of who is at fault, with a view to obtaining their full particulars, including the name of their insurer. Apart from that you need their license number and be sure that it contains their current address. Of course a lot of things here will depend on the severity of the accident, the attitude of the other people and the locations of the accident i.e. is it a busy spot and are you able to leave the cars at the scene? As soon as possible it is wise to contact the rental car company, taking careful note of who you spoke to and when, and seeking there requirements with regard to accident report forms, which are sometimes provided in the glove box of the hire vehicle. Of course the police need to be informed should the accident be serious enough, and unfortunately, this is not always easy to determine.

Most unfortunately along with the trauma of the accident you will probably now have to deal with several extremely competitive and aggressive tow truck drivers. Whatever happens under no circumstances should you allow them to touch your rental car unless you are directed to do so by either the police or the car hire company. All tow truck drivers/companies are paid a highly inflated rate for what is called a “police tow”. This tow will ultimately have to be paid for by someone and that someone could be you. On top of that the tow truck driver/company also receives a commission from any panel beater that he delivers the car to with whom he has an arrangement. Hence the reason for his “keenness” to tow your vehicle! Once he has your car hire vehicle attached to his truck it is very difficult or impossible to get him to release the car.

From this point on you will need to work with the car rental company to sort through all the details and most importantly, what happens next! You will probably have to pay the excess at this point and then set about recovering it should you not have been at fault.

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How to Reduce Your Car Insurance Excess

It seems that the world is now such that everyone is wondering how they can save money and/or lower their bills. The total cost of owning a car is actually comparable to that of owning a home with the now skyrocketing payments, heavy fuel costs, and the overall high car Insurance premiums that we pay.

As far as saving money on insurance premiums goes, there are a number of things that can be done. You can refinance your car loan to obtain a lower interest rate; purchasing a vehicle with better mileage will save on gas costs, among several other options that will save you money on your Auto Insurance premiums. Looking around for the best quote is the most important first step to lower insurance costs for your vehicle.

You can hire an insurance broker who will do all the research for you; however, you can equally easily shop on your own and could even save money by avoiding broker fees. The deductible is the amount that you are expected to pay out of your own pocket in the event that there is a claim on your policy. By maintaining a very low deductible, your premium rate is higher, and if you increase your deductible then you will see the premiums go down.

The type of car you drive can also determine what kind of premium you pay with your Auto Insurance policy. If your vehicle is in the high risk category for theft or if you have been involved in multiple accidents it could dramatically increase your rates. Obviously, also, the value of your car will impact the rates as well; whether it is a sports car or a family sedan. Your previous driving record is another very important factor to the calculation of your premium costs. The insurance company will look at everything from the amount of speeding tickets you’ve received to the amount of time you’ve been driving for. Any violations major or minor will increase your premium. Any security or safety features your vehicle may be equipped with will do a great deal to lower your insurance premiums due to the generous discounts you will receive from the companies. Features such as anti theft devices, airbags, or safety locks can create big discounts on your policy.

Speaking to your insurance agent to find out what sort of discounts are offered for which features, and then subsequently having them installed to receive the discounts is a good idea. Do not blindly renew your policy just because the company sent you the bill. Take time to look over the policy for any changes that can be made, and simultaneously shop around with other companies for better rates. Combining multiple policies with one company can usually save you a lot of money, at times these savings could be up to hundreds of dollars. If you have mortgage insurance or boat insurance you can use the same company to insure all of your possessions and receive hefty discounts. Saving on Car Insurance can be done in many ways. If you shop around and find out the required information needed about your driving record and your car you will be able to make the basic changes that will save you hundreds.

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Project Risk Management and Assurance

Why do so many organisations embark on high-risk projects without demanding robust project assurance?

Projects fail for many reasons. Recent global studies indicate that inadequate risk management is a common cause.

Successful project managers aim to resolve high levels of exposure before they occur, via systematic risk management processes.

Many projects are inherently exposed to myriad risks and are often significant in scale, complexity and ambition. Delivering large-scale projects can often be adversely impacted by a bias towards being over-optimistic.

Imperfect, insufficient or inadequate data increases exposure that often results in over-estimating benefits and under-estimating costs.

Managing macro and micro-level events related to achieving project deliverables, whilst balancing the needs of many stakeholders, has become increasingly important.

Assessing risks at both portfolio and work-stream levels helps increase confidence that risks are understood.

Projects are often prioritised relevant to their levels of perceived exposure and one has its own risk profile.

Project Risk Management

Project risk management focuses on identifying, analysing and responding to project events.

It should be designed to systematically identify and manage levels of uncertainty and potential threats to delivering project objectives successfully.

Risk management processes should be iterative throughout a project’s life-cycle and embedded in project management planning and activities. Smaller projects often require minor work and periodic monitoring.

Complex projects need formalised processes to analyse, manage and report risks.

Good reporting relies on clear descriptions of all exposure, their impact on the projects, and potential costs for mitigation and inaction.

This helps ensure project personnel understand the potential impact risks may have on projects’ success and have prepared strategies to minimise negative consequences.

Problems occur when there is limited visibility of risks at project and portfolio levels or approaches to risk-management are ad-hoc and inconsistent.

Further problems can arise when risks are identified but recorded at a very high level accompanied by highly subjective risk ratings, rather than being the result of more substantive risk assessment.

When these problems arise, an organisation would benefit from clearer, more formal and wide-spread processes for capturing and monitoring risks.

Project and Portfolio Risk Assessments

Project and portfolio risk assessments should be undertaken to understand their risk profiles and associated threats in achieving business objectives.

Assessments should identify the action plans to address the risks identified and allocate executive responsibility to manage them. Additional risk assessments should be carried out on selected projects (perhaps by prioritising them by value or complexity).

Risk management processes should be on-going and monitored throughout a project’s life-cycle.

Regular risk reports would provide Project Sponsors, Senior Responsible Officers and Steering Groups with better visibility of projects’ risk profiles.

Whether you’re responsible for overseeing or managing a project, robust project assurance will help you address the risks that threaten its success.

Mark Gwilliam FCCA CA is the founder and Director of Business Advisory Services.

From humble beginnings, the firm has grown from strength to strength.

It has matured from a small accounting and tax services practice to one that helps small business owners, entrepreneurs and executives navigate complex challenges; including strategy, risk management and internal audit, managing shared-service centres and operations.

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