What is an insurance excess? Can it lower my premium?

At a glance

• An insurance excess is the amount you’ll need to pay towards any insurance claim.
• There are both compulsory and voluntary excesses to consider.
• A voluntary excess could lower your insurance premiums, but it’s important to weigh up the costs involved.

Most types of insurance policy, from car to pet insurance, will come with an excess – an amount you’ll need to pay yourself in the event of a claim. This is designed to reduce the amount of minor claims made and to discourage fraudulent activity, because if people have to pay towards the cost, they’ll be less likely to make a claim that isn’t strictly necessary.

It can be a good way to reduce premiums too, both on a personal level and a wider scale (if insurance companies had to pay for every minor scratch or broken wing mirror, premiums would rise across the board), but it’s important to know how excess works and what you’ll be expected to pay. This guide covers everything you need to know.

What is an insurance excess?

An insurance excess is the amount of money you’ll have to pay towards any claim you make, with the provider covering the rest. This amount is a pre-agreed figure which is determined before your insurance policy takes effect, but you can also opt for a voluntary excess if you wish (we’ll discuss this more below).

The amount of excess can vary between providers and will be determined by a variety of factors, including your age, claims history, the kind of insurance you have and the type of claim you’re making (accidental damage claims in a home insurance policy will have a lower excess than claims for subsidence, for example), but will typically range from £50 to £300 or more.

Compulsory vs. voluntary excess

It’s important to remember that there are two types of excess – compulsory and voluntary. Compulsory excess is the one set by your provider and is the minimum you’ll have to pay towards any claim. Voluntary excess is different.

Voluntary excess is an amount you’re choosing to pay on top of your compulsory excess in the event of a claim. Adding a voluntary excess can be an effective way to reduce your costs, because if an insurer knows you’ll cover a larger portion of the claim yourself, they can afford to offer cheaper premiums. Just make sure you could afford to cover the amount in the event of a claim.

How does excess work?

Let’s look at an example of how excess might work.

• Your car breaks down and you make a £400 claim on your car insurance to cover the cost of repairs.
• You have a compulsory excess of £100, as well as a voluntary excess of £100.
• You’ll have to pay £200 towards the repairs, while the insurer foots the bill for the remaining £200.

Make sure to check your policy document carefully, as the excess can be different for different parts, particularly for things like home insurance (where there may be both contents and buildings cover with different excesses for each) and travel insurance (where different sections of cover will have different excesses).

In this case the excess is often charged per section, and if an incident involves several different aspects, you may need to pay the excess multiple times for the same claim.

How much voluntary excess should I pay?

This is a very personal decision as you’re generally free to choose as much or as little voluntary excess as you like, typically ranging from £50 to several hundred pounds or more. Two key factors to consider include:

• Your monthly budget, and how much a lower or higher excess will impact the cost of your premiums. Typically speaking, the higher your excess, the lower your premiums, which can offer great short-term savings.
• Your ability to cover the excess should you need to make a claim. The flipside of a higher excess is that you’ll need to pay that larger amount in the event of a claim, and it’ll usually come at an unexpected time. Make sure your finances could cope with that kind of outlay.

Deciding on a voluntary excess is always a careful balance and depends a lot on your risk appetite. Commit too much and you’ll have to pay a large sum in the event of a claim, potentially making it unaffordable and meaning the entire policy may not be worthwhile. Yet if you commit too little you could be facing higher premiums than you need to, and you may never even make a claim to reap the benefits of that.

So do you pay more now for the security of having more of any potential claim covered in the future, or pay less now and risk needing to pay a larger amount at a later stage? It’s ultimately your decision and depends on your individual circumstances.

Can you change your voluntary excess?

Yes, you can change your voluntary excess, but only when it’s time to renew the policy. You won’t be able to change your mind at the midpoint, and certainly not when you make a claim, so make sure you’re comfortable with the amount from the outset.

When do you have to pay the excess?

This will depend on the insurer, as they all have different claims processes. You might be asked to pay the excess as soon as you start the claim, later down the line when the full claim is being paid, or it might be deducted from the claim amount being paid to you.

Always check the terms in your policy document so you know what to expect.

Do you pay excess if you’re not at fault?

There may be some scenarios where you don’t need to pay the excess, such as if you’re in a car accident that wasn’t your fault. In these cases, your car insurance provider may claim back the money from the person at fault (or their insurer), including the excess amount.

What if your claim is less than the excess?

If your claim is less than the excess, you won’t be able to claim, and will simply need to cover the cost yourself.

Excess protection insurance

As an additional product, some insurance companies let you purchase excess protection. This allows you to reclaim any excess you’ve paid in a claim, so while you’d initially need to pay the full excess, you’d be able to claim it back later.

For example, let’s say you have a home insurance policy that includes cover against theft and agreed to a total excess amount of £200 (compulsory plus voluntary). In addition to this, you take out an excess protection policy for a £50 premium.

Then, within the first year, your house is burgled, and you make a claim for £1,000. Under normal circumstances, you would have to pay £200 towards your claim. However, with an excess protection policy, this £200 would be refunded to you.

Excess protection is not a legal requirement, and is purely there to offer the peace of mind that you’ll always be able to afford a claim. In general, this type of policy is ideal if your insurance options are limited and/or you’re quoted a high compulsory excess, ensuring a claim needn’t be unaffordable.

Just make sure to weigh up the costs involved at the outset to make sure it’s worth it, as if you’ve got a relatively low excess anyway, paying extra for this kind of protection may not be worthwhile.