An excess payment, also known as a deductible, is a fixed contribution that must be paid each time a car is repaired with the charges billed to an auto insurance policy.
Normally this payment is made directly to the accident repair “garage” (the term “garage” refers to an establishment where vehicles are serviced and repaired) when the owner collects the car.
If one’s car is declared to be a “write off” (or “totaled”), then the insurance company will deduct the excess agreed on the policy from the settlement payment it makes to the owner.
If the accident was the other driver’s fault, and this fault is accepted by the third party’s insurer, then the vehicle owner may be able to reclaim the excess payment from the other person’s insurance company.
Compulsory excess
A compulsory excess is the minimum excess payment the insurer will accept on the insurance policy. Minimum excesses vary according to the personal details, driving record and insurance company.
Voluntary excess
To reduce the insurance premium, the insured party may offer to pay a higher excess (deductible) than the compulsory excess demanded by the insurance company.
The voluntary excess is the extra amount, over and above the compulsory excess, that is agreed to be paid in the event of a claim on the policy.
As a bigger excess reduces the financial risk carried by the insurer, the insurer is able to offer a significantly lower premium.
Basis of premium charges
Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company, in accordance with a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.
When the premium is not mandated by the government, it is usually derived from the calculations of an actuary, based on statistical data.
The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims. Those factors can include:
- the car characteristics, the coverage selected (deductible, limit, covered perils),
- the profile of the driver (age, gender, driving history),
- the usage of the car (commute to work or not, predicted annual distance driven).
Gender
On 1 March 2011, the European Court of Justice controversially decided insurance companies who used gender as a risk factor when calculating insurance premiums were breaching EU equality laws. The Court ruled that car-insurance companies were discriminating against men, and these practices had to stop.
Age
Teenage drivers who have no driving record will have higher car insurance premiums. However, young drivers are often offered discounts if they undertake further driver training on recognized courses, such as the Pass Plus scheme in the UK.
In the US many insurers offer a good-grade discount to students with a good academic record and resident-student discounts to those who live away from home. Generally insurance premiums tend to become lower at the age of 25.
Some insurance companies offer “stand alone” car insurance policies specifically for teenagers with lower premiums. By placing restrictions on teenagers’ driving (forbidding driving after dark, or giving rides to other teens, for example), these companies effectively reduce their risk. A teenager driving a safer car, such as a sedan rather than a flashy sports car, can also get lower insurance rates.
Senior drivers are often eligible for retirement discounts, reflecting the lower average miles driven by this age group.
Rates may increase for senior drivers after age 65, due to increased risk associated with much older drivers. Typically, the increased risk for drivers over 65 years of age is associated with slower reflexes, reaction times, and being more injury-prone as a result of aging.
Additionally, older drivers between the ages of 60 and 70 in the US must be able to demonstrate competency in order to retain a driver’s license.
