Why might a policyholder choose a higher excess?

Choosing a higher excess can lead to potentially lower insurance premiums because the policyholder is agreeing to take on more financial responsibility in the event of a claim. Insurers typically view a higher excess as a way to share the risk with the policyholder; therefore, they may offer a reduction in the premium to reflect this. By increasing the excess, policyholders can lower their overall costs for insurance, as the insurer does not have to account for smaller claims.

This concept stems from the principle of risk-sharing; the insurer is incentivizing the policyholder to bear a greater portion of the risk, thus providing a more favorable rate on the premium. While a higher excess means that the policyholder will pay more out-of-pocket when a claim occurs, the trade-off of reduced premiums can make insurance more affordable overall.