Sometimes insurance companies, insurers, would like to limit their risk exposures, especially when certain damage of the goods is an ordinary expectation throughout the related sector.

In such circumstances insurance companies add technical insurance terms,"Franchise" and "Excess", to the insurance policies, in order to limit their financial responsibilities.

Franchise : Definition and meaning

Franchise determines minimum threshold of the insurance companies' financial responsibility. Insurance companies will not be paying any amount for the losses, which do not pass the mentioned franchise value on the insurance policy.

If the losses exceed the franchise amount, then insurance company covers full damage.
A franchise exists when the insurance company is not responsible for the loss which does not exceed an agreed amount, but is responsible for the entire amount of the loss which exceeds the agreed amount.


Excess : Definition and meaning

Excess determines how much of the claim should be covered by the insured company.

Damages up to excess amount will not be compensated by the insurance company.
For the damages, which are above the excess limit, insurance company's responsibility is restricted for the amount over the determined excess level.

An excess exists when the insured agrees to be responsible for an agreed amount of loss, and the insurance company is only responsible for the amount over the agreed amount.

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