Insurance excess and deductible explained for business policies
What an excess is
An excess is a fixed amount, a percentage or a time period deducted from each admissible claim. The insurer assesses the loss, applies the policy limits and conditions, then subtracts the excess. The business carries the excess itself.
Singapore wordings use both terms. Property and engineering policies tend to say "excess". Liability and financial lines often say "deductible". The effect is the same.
Three features define any excess:
- The amount. A dollar figure, a percentage of the loss, or a number of days.
- The trigger. Per claim, per event, per item or per year in aggregate.
- The scope. One excess for the whole policy, or a different excess for each section or peril.
The schedule states all three. A policy can carry a S$2,500 standard excess and a higher excess for a named peril such as flood, theft or water damage. The higher figure applies whenever that peril causes the loss.
An excess exists for two reasons. It removes small claims, where handling costs approach the claim itself. It also keeps the business exposed to a share of every loss, which supports loss prevention.
Types of excess on business policies
| Type | How it works | Where it appears |
|---|---|---|
| Each and every loss | Fixed amount deducted from every claim | Property, public liability, motor |
| Per event | One excess for all claims from one cause | Liability, storm, flood |
| Percentage excess | A share of the loss, often with a minimum | Theft, natural perils, cyber |
| Time excess | First hours or days of interruption not paid | Business interruption, machinery breakdown |
| Aggregate deductible | Business pays losses until a yearly total is reached | Larger liability programmes |
| Self-insured retention | Business handles and pays claims below a set amount | Large corporate liability |
The per-claim and per-event distinction decides most disputes. A storm that floods 3 units in one estate may be one event or 3 claims. The wording on "event" or "occurrence" settles it. Three claims mean three excesses.
A time excess removes the first part of an interruption rather than a dollar sum. A 48-hour time excess on business interruption means the first 2 days of lost gross profit stay with the business.
Worked example: one loss, three deductions
A trading company has a fire in its warehouse. The figures below are an example only.
- Stock value at the date of the fire: S$1,000,000.
- Stock sum insured on the policy: S$800,000.
- Loss assessed by the adjuster: S$200,000.
- Policy excess: S$5,000 each and every loss.
Step 1 applies average, because stock is insured for 80% of its value. Section 81 of the Marine Insurance Act 1906 states the principle: an assured insured for less than the insurable value is its own insurer for the uninsured balance. Property wordings carry the same rule as an average condition. The adjusted loss is S$200,000 × 80% = S$160,000.
Step 2 deducts the excess. S$160,000 − S$5,000 = S$155,000 paid by the insurer.
The business carries S$45,000 of a S$200,000 loss. Only S$5,000 of that is the excess. The other S$40,000 is the cost of underinsurance. Some wordings deduct the excess before applying average; the policy order decides which applies.
Co-insurance and co-payment
Co-insurance means the business pays a percentage of the loss, not a fixed first amount. It is different from an excess because the share continues up the whole claim.
The clearest Singapore example is compulsory medical insurance for Work Permit holders. Employers must buy cover of at least S$60,000 a year per worker for inpatient care and day surgery. For claim amounts above S$15,000, the insurer pays 75% and the employer pays 25%. This co-payment split has applied since 1 July 2023.
Worked example, for illustration: a worker's hospital bill is S$40,000.
| Portion of the bill | Insurer pays | Employer pays |
|---|---|---|
| First S$15,000 | S$15,000 | S$0 |
| Remaining S$25,000 at 75/25 | S$18,750 | S$6,250 |
| Total | S$33,750 | S$6,250 |
From 1 July 2025 the same scheme moved to age-banded premiums, with 2 bands: 50 and below, and above 50. Exclusion clauses were standardised, and insurers now pay hospitals directly once a claim is admissible. The employer's 25% share above S$15,000 still has to be budgeted.
How the excess affects the premium
A higher excess reduces the premium because the insurer stops paying the most frequent losses. The saving is not linear. Moving from S$1,000 to S$5,000 removes many small claims. Moving from S$50,000 to S$100,000 removes few, because large losses are rare.
The insurer also sets a minimum excess it will accept. Claims experience drives that floor. Property insurance premiums in Singapore grew 4.1% to S$864.1 million in 2025, while property claims rose 60.5%. The General Insurance Association links the rise to more fire incidents and several large losses. Excess levels are one of the terms an insurer reviews when a class runs at that loss rate.
A business should choose an excess it can pay from cash flow on short notice. A useful test is the number of losses below the proposed excess over the last 5 years. If those small losses cost less than the premium saved, the higher excess pays for itself. The loss record in the claims history FAQ shows the data insurers ask for.
Common mistakes
- Reading one excess for the whole policy. Section excesses for theft, flood or water damage are often higher than the standard figure.
- Assuming one excess per incident. Without an event or aggregation clause, a single storm can trigger 3 or 4 excesses.
- Confusing excess with average. The excess is a known amount. Average depends on the sum insured and can cost far more.
- Ignoring time excesses. A 72-hour time excess on a 5-day interruption removes 60% of the claim period.
- Not passing the excess down. Contracts with subcontractors should state who bears the excess when their work causes the loss.
- Paying claims below the excess without recording them. Insurers still ask for small losses in the claims history.
Frequently asked questions
Is the excess per claim or per year?
Most business policies apply the excess to each claim or each event. An aggregate deductible, which applies per year, appears mainly on larger liability programmes. The schedule states the basis. Where it says "each and every loss", every separate claim carries the full excess.
Does a higher excess always cut the premium?
Usually, but the saving shrinks as the excess rises. Large losses drive the premium on most commercial risks, and a higher excess does not touch them. Insurers also set a minimum excess for some risks, so a lower figure may not be offered at any price.
What is co-insurance and how is it different?
Co-insurance makes the business pay a percentage of the loss above a threshold, not a fixed first amount. Work Permit medical insurance is the main Singapore example: above S$15,000, the insurer pays 75% and the employer 25%. An excess stops at a fixed figure; co-insurance continues up the claim.
Who pays the excess on a third-party liability claim?
The insured business pays it. The insurer usually settles the third party in full and recovers the excess from the business afterwards. The injured third party is not affected by the excess, so the business must keep cash to reimburse the insurer.
Sources
General information only, not advice on any particular policy. Cover depends on the policy wording and the insurer's terms.