What You Need to Know About Excess (Premium) - Part 3

Let us move on to see how excess is related to premium.

Let's assume that you have a normal saloon car (Toyota Vios) and based on your profile, your motor policy premium is at $1000 with standard excess of $500. As mentioned earlier, if you happen to have a minor accident with cost of repairs < $500, it is pointless to claim against your policy for the repairs. As such, insurer actually protect themselves from small claims by setting a standard excess on the policy.

Thus, the higher the standard excess, it also means a lower risk for the insurer. In that earlier example, if the standard excess is at $1500 instead of $500, the premium should be lower than $1000, say $950. Likewise, if the standard excess is set at $0, the premium will be higher than $1000 since it means a higher risk for the insurer to incur losses.

In practice, most insurer will alow the insured to buy up or buy down excess which is also commonly known as voluntary excess. However, there will be a limit on how much excess you can buy up and in Singapore context, it is usually set at $3000.

On the other hand, if you would like to buy down excess, there may be some conditions attached. For example, the insurer may only allow the insured to buy down excess provided there is no claim or 1 claim < $10,000. This is only an example and it differs among all insurers. There could be more criterias which are not listed here.

One important point to note is any additional excess imposed by the insurer is usually not allowed for buydown. So, if the standard excess is $500 but due to your driving experience, your insurer has increased the excess to $1500, you will not be able to buy down the excess at all.