Excess insurance is that policy that includes a percentage or a fixed amount that the insured must cover with their own assets in the event of an accident.
That is to say, insurance with a franchise is one where, only if the damage exceeds a certain amount, the insured will receive compensation from the insurer.
The disbursement made by the insurer may be, for example, the difference between the calculation of the damages suffered by the insured and the excess.
That is, if the damages are 600 euros and the excess is 200 euros, the insurer will pay out 400 euros (This is not the only type of insurance with an excess, as we will see later).
Another point to keep in mind is that the amount corresponding to the franchise can be set as a percentage of the insured amount, a percentage of the value of the insured asset (a percentage of the value of the car, for example) or a fixed amount. This, always prior agreement between the parties.
In addition, it is worth clarifying that, although excess insurance is usually associated with car insurance, it is not an exclusive modality of this type of policy. There may be, for example, excess travel insurance.
Advantages and disadvantages of excess insurance
Among the advantages of excess insurance, we can mainly highlight that they imply a lower cost for contracting the policy. That is, the insurance premium is cheaper.
Another advantage, now on the part of the insurer, is that a deductible amount can be set so that the compensation to be paid is always greater than the cost of processing or managing said disbursement. That is, you would not have to spend 300 euros on paperwork to pay 300 euros (or less) of coverage to the insured.
On the other hand, as a disadvantage of excess insurance, we can point out that the insured must cover part of the damage suffered in the event of an accident, so they will need some capital available for emergencies. You cannot trust the assistance of the insurer 100%.
Types of franchise insurance
We can distinguish two types of excess insurance:
- Insurance with absolute excess: When the damages are greater than the fixed excess, the insurer pays the difference. It is the scheme that we have explained previously in the article. If the damages are 4,000 euros and the deductible is 500 euros, the insurer must pay about 3,500 euros in favor of the insured.
- Insurance with relative excess: The insured is not entitled to reimbursement if the damage is less than a certain figure. However, if that fence is exceeded, the insurer covers all the damage. In other words, if we return to the last example, since the damages (4,000 euros) are greater than the excess (500 euros), the insurer would pay out 4,000 euros. But if the damage were 480 euros, that amount would be fully covered by the insured.