When it comes to insurance, the term ‘excess’ is often used with the expectation that you’ll know exactly what it means, but what happens if you don’t? Here, we explain what an insurance excess is, how it works, and how it affects what you pay overall.
- What is an insurance policy excess?
- How does excess affect insurance premiums?
- What excess should I choose?
- Can excess be refunded?
An excess is an amount of money you pay towards an insurance claim. Depending on the type of claim you’re making, you’ll either have to pay the excess to the insurer upfront, or your insurer will deduct it from your payout.
For example, you make an £800 home insurance claim to replace the furniture that was damaged, and your excess is £200. This means your insurer will keep the first £200 (your contribution to the claim) and pay you the remaining £600.
Almost all insurance policies, whether it’s for your home, car or business, come with an excess that you’ll need to pay. The one exception is life insurance, where excess does not apply.
You’ll also notice that insurance policies typically come with two types of excess (but you must pay both for a claim to go ahead):
- Compulsory excess – this is an amount chosen by your insurer, so you won’t be able to change it.
- Voluntary excess – this is an amount you set in agreement with your insurer. Confusingly, ‘voluntary excess’ doesn’t mean you can decide whether or not to pay it. The ‘voluntary’ part simply refers to the fact it’s an amount set by you rather than your insurer. If you opt for a voluntary excess, you will normally receive a premium discount.
Why is my policy excess so high?
Your compulsory excess is usually based on your personal circumstances and what the likelihood of you making a claim is. For example, if your home is in a flood risk area, you can expect to have a higher excess because there’s a greater risk of an expensive claim. Similarly, insurers are also likely to consider what it is you’re insuring, so a Grade II listed home may attract a higher excess because the cost to repair or rebuild it will be more than the average property.
What’s the purpose of an insurance excess?
Having an excess essentially shares the responsibility of a claim between you and the insurer, helping keep low value claims down.
Increasing your voluntary excess can help lower your overall premium, but remember that you’ll need to pay both types of excess for a claim to go ahead. So, if you decide to raise your voluntary excess, it should still be a figure you can afford. If it isn’t and you can’t pay it, your claim could be rejected.
When it comes to working out what’s right for you, there are fundamentally two scenarios:
- Set a higher voluntary excess to lower your premium, but you would have a higher excess to pay when making a claim.
- Set a low voluntary excess, which would mean your premium saving would be lower.
Scenario one is the more economical option, but if your financial situation is unpredictable and access to funds tricky, it could mean you don’t have the ability to pay it should you need to make a claim. On the flip side, scenario two means you’ll pay more for your policy, but if you need to make a claim, your excess will cost you less (which could be the ‘safer’ option).
How do I decide insurance excess?
Deciding how much to set as your voluntary excess really depends on your own budget and approach to risk. When you consider what might be right for you, it’s worth thinking about what the probability of a claim is. For instance, if you think the chances of you making a claim are low, you might choose to increase the excess to keep your premium down.
If you have excess protection insurance, you can claim back your excess (as long as your claim meets any specific terms or conditions set by your insurer).
Excess protection will let you make multiple claims up to a set limit (but generally only for the address listed on the policy).
In most cases, you’d need to make your initial claim and pay the excess on that first. After that, you can then make a claim on your excess protection policy for reimbursement.
How do I claim back my insurance excess?
If you’ve got excess protection insurance, your insurer will have a claims procedure in place (you’ll usually find this in your insurance documents). If you decide to claim back your excess, you should follow these instructions in the first instance.
Are there any circumstances where my excess may be waived or reduced?
This will depend on the circumstances surrounding your claim. For example, if someone else was clearly at fault (such as in a car accident), your insurer will automatically try to recoup your losses from the other person. However, your excess won’t be refunded; if the claim is settled with the other party at fault then you can seek to recover the excess yourself, or if you have legal expenses cover then this will normally act to recover on your behalf, along with any other out of pocket expenses such as personal injury claims and medical costs.
There are also some policies (typically travel insurance) that come with excess waivers. If this is an available option, you’ll usually pay an extra amount when you buy the policy, but it would mean you avoid paying an excess.
You can also take out excess protection insurance, which can reimburse any excess you’ve paid.
What happens if I can’t afford to pay my excess?
If you can’t afford your excess, your claim might not proceed, and it would be up to you to meet your own repair costs.
Some insurers might work with you and offer to set up some sort of payment plan, but this would be completely at their discretion. Or your insurer may deduct your excess from the amount they pay you for the claim or the amount they’ll pay towards repairs.
Can I choose different excess amounts for different types of claims?
Where policies come with a voluntary excess, you’ll be able to set the amount (in agreement with your insurer). You can also expect insurers to charge different excesses based on the potential value of the claim.
Broadly speaking, the bigger the potential claim, the higher the excess. For example, the excess for subsidence can be as much as £1,000, while an escape of water excess is likely to be around £500.
Is there a limit to how many excesses I can pay in a given policy period?
Policies vary, but as a general rule, you’ll need to pay your excess for each claim you make. So, for example, if you make a claim for stolen belongings, you’ll need to pay the excess set out in your home insurance policy. If you need to make another claim on your home insurance later on (for example, if your roof was damaged in a storm), you’d have to pay the excess for this claim too.
With this in mind, it’s well worth double checking what your policy says about the excess. This is particularly worthwhile on policies like travel insurance, where you could be making multiple claims in one go. For instance, some travel policies charge excess per person, so you could make a number of claims but only pay one excess. Others charge excess per incident; this would mean if your suitcases were lost and your hand luggage was stolen, you’d have to pay two excess amounts, one for each claim.
How does excess apply to third-party claims?
If you’re involved in an accident, and a third party makes a claim for damage, it’s up to them to pay their own excess. You only pay the excess for claims that you make.
Can I negotiate the excess amount with my insurer?
You can generally only negotiate your voluntary excess. Compulsory excess is usually determined by circumstances (such as where you live, your age, or the value of the item you’re insuring).
What happens if I don’t agree with the excess amount set by my insurer?
Insurers should clearly set out claim excess in their policy documents which is why it’s a good idea to have a quick check of your policy when you receive it.
If you feel your insurer or broker hasn’t been clear about excesses, you should speak with them first and escalate as a complaint if necessary. If you can’t reach an agreement, you can then contact the Financial Ombudsman Service to see if they can help (their services are free).
Help understanding home and other insurance products
Insurance can be confusing, but it’s important to get it right, and at Alan Boswell Group, we’re here to help.
With more than four decades of experience, we can tailor policies to suit you, whether that’s cover for your business, helping you avoid underestimating the value of your home and belongings or even arranging moving house insurance (just to be on the safe side). To find out more, contact us at 01603 218000 to speak to an expert.