One of the biggest influences upon the cost of an
insurance premium is the policy excess, which is the amount of each claim
that you pay yourself. It is also probably one of the most ignored factors
by many people, and there are quite a few insurance companies that quote
quite low premiums without making it absolutely clear that the reason for
these low premiums is a high excess. Why should this make such a
difference?
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There are several reasons. First of all every claim that is made against
an insurance company costs that company a lot more than it has to pay out
to cover damage to property or injury to persons, because whether the
claim is for a tiny or huge amount it still costs money to process it and
to cover overheads. It follows that the more claims are made the more has
to be spent in this way and since quite a lot of accidents cause fairly
minor damage a lot of claims can be avoided completely if the insured
person carries a large excess. Secondly, we do not expect everything in
the world to be perfect, and if baby spills a little food on the carpet
causing a minor stain, or our car sustains a minor scratch, we may not be
so bothered about it as to make a claim against our insurance if much of
the cost comes out on our own pocket. Similarly, we may be tempted to
place a chair over the stained area, are carefully paint out the scratch
on our car, rather than have a new carpet a respray! And, finally, put
yourself into the position of an insurer. If you have two potential
clients, one of whom is so confident of staying claim free that he or she
is prepared to accept a large policy excess, and another who shies away
from paying out any more than is absolutely necessary in the event of a
claim, which one of those would you consider to be the safest risk?
Obvious answer, and the more careful and competent and insured person is,
the lower the premium that person is likely to face.
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