What is the excess in an insurance policy?
In this article we are going to approach the concept of the franchise, as one of the elements that must be known within the insurance environment.
When we take out insurance it is very possible that we are given two policy options; one with franchise and one without franchise. This happens in a totally normal way in the car insurance market, although not exclusively, since any type of policy can be contracted this way.
The modality with franchise will always be cheaper than the one without franchise, which will always have a higher price. Thus, when we make the decision we have to know what each modality implies.
Differences between an insurance policy without excess and with excess
In insurance without excess, when an accident occurs, the insurance company will proceed to fully indemnify you, while in the case of an excess , a part of the compensation must be paid directly by us.
To a certain extent we could say that, in insurance with excess, we ourselves become insurers of claims, up to the limit that we have agreed.
Taking out insurance with a franchise does not affect the coverage given by the company at all, but it does affect the amount it pays as compensation.
In a home policy we have contracted an excess of €500. As a consequence of a water leak, we caused damage to our downstairs neighbor amounting to €2,000. In this case, the company will indemnify the amount of €1,500 and we will pay the remaining €500 as a franchise.
Therefore, if the amount of compensation to be paid for a claim is less than what we have agreed upon, the result is that the company will not pay any amount</strong >.
For example, in the previous case of home insurance, if the damages caused to the neighbor are limited to €200, as these are below the excess, we will have to compensate them ourselves and the company will not pay anything.
In both cases we would be talking about an absolute value excess that is established in a fixed amount and that does not vary throughout the life of the policy.
Possibility of a mixed policy
It is also possible that the insurer offers us the possibility of a mixed policy; that is to say, that there is an applicable franchise for certain types of claims and yet not for others. For example, the franchise can be applied exclusively for damage to own property caused in claims that are reported on this matter.
To continue with the previous example, if as a consequence of the water leak damage is caused to the neighbor’s property and property of our house, we could fully compensate the damage caused in the home from the third party, but with franchise those generated in our own assets.
What is relative franchise
The so-called relative excess is also possible, which is applied to claims that exceed a certain amount. Thus, for example, we take out a policy with a €200 franchise only for claims greater than €1,500. Thus, if we have a claim of €900, this will be fully covered by the company, but if the claim is of €1,600, the agreed excess will be applied.
Sometimes the excess is set with the company, not a fixed figure but a percentage of the compensation, for example 10% of the amount of the damages caused. This is called the percentage franchise and is usually established on a maximum and minimum amount to be paid by the insured.
Another thing that we have to take into account is that the excess will be paid for each claim that is declared. That is, if one year we report 3 claims, we will pay 3 full deductibles.
Who pays the excess
Another issue that raises questions is who pays the franchise.
The usual rule is that the injured party receives two payments; one for the main coverage and another for the amount of the excess. Although nothing prevents the company from paying the total compensation and then recovering the corresponding amount from its own insured.
In short, taking out insurance, with or without excess must be assessed based on the needs of the insured, their history of claims and the security that you want to enjoy, both options being perfectly recommended and can mean great savings for those who want to be insured.