What is excess in insurance?

If you’re ever taken out insurance on anything (your home, car, travel, etc.) you’ve probably come across the term ‘excess’ at least once or twice. But what exactly is excess in insurance?

This guide will cover everything you need to know about excess, including:

• What excess is in insurance
• What the different types of excess are
• When you have to pay excess
• How Countingup can help

Insurance excess refers to a pre-agreed sum of money you need to pay to your insurance provider if you ever make a claim. For example, say your car breaks down, and you need your insurance to pay for it. In that case, you only have to pay the agreed excess amount, and your insurer will cover the rest of the cost. 

In many cases, your insurer will ask you to pay the excess immediately to begin the claim process. Or, your insurer might deduct the excess cost from the total sum you’re owed at the end of the claim. 

The excess cost can vary depending on who your insurer is, the type of insurance cover, and an added voluntary excess. Of course, you would have chosen to add voluntary excess when you purchased your insurance, so it won’t be a random sum that suddenly pops up. We’ll explain more about the types of excess in the next section.

There are two types of insurance excess: compulsory and voluntary.

This is the excess amount that you have to pay when you make a claim on your insurance. Your insurance company provides the compulsory excess, meaning you can’t change it. The amount will also depend on the incident you’re claiming for and what your insurance premium is.

Let’s look at an example. Say a flood damages your home, and you make a home insurance claim for £1,000 to repair the damages. Now, let’s imagine your compulsory excess is £200 for this type of claim. 

In this case, you’ll have to pay £200 of the cost, meaning you’ll receive £800 back from your insurer. Your excess usually stays the same no matter how much money you claim for. 

Your insurer decides the compulsory excess, but you can also choose to add voluntary excess to your insurance. Including additional voluntary excess can bring down your annual insurance premium. This means you pay less towards your insurance every month but have to pay more if something happens and you need to make a claim.

Research by money.co.uk showed that increasing your voluntary excess from £0 to £1,000 could save you around £480 per year. If you go more than a year without needing to make a claim, you could end up saving a lot of money. 

On the other hand, if you do need to make a claim within a year, you’d have to pay the £1,000 plus whatever your compulsory excess is. This means you could end up losing money instead. 

To save yourself from losing money in case of a claim, be reasonable when setting your voluntary excess sum. Think about how likely you are to make a claim within the next year and if the annual saving is actually worth it. 

Choosing how much to pay in voluntary excess can be tricky. How do you know what’s too much to pay?

In most cases, your insurer won’t allow you to choose a voluntary excess above £1,000. That said, £1,000 is still a lot of money for many people. 

When choosing your voluntary excess, a good rule of thumb is to think about how much you could realistically afford to pay if you had to claim the next couple of months. Avoid selecting the highest voluntary excess thinking you won’t need to claim on your insurance anyway. Instead, choose a reasonable amount that you are prepared to pay if the need arises.

You can also look into taking out something called ‘excess protection’, which will cover the cost of your excesses for a small annual fee. Check the cover details since you may only be covered up to a certain amount, meaning you’ll need to pay what’s leftover. For example, if the excess protection only covers £500, but your total is £1,000, you’ll still need to pay £500 in case of a claim. 

No, is the simple answer. You don’t have to pay excess on your insurance if the incident was caused by someone else. For example, if your car was damaged because someone ran a red light and crashed into you (and you can prove it), your insurer will refund you the excess, or you won’t have to pay it at all.

You also don’t have to pay excess if you have excess protection, someone makes a claim against you, or you have third-party only insurance. Third-party insurance is a policy that you (the first party) purchase from the insurance company (the second party) for protection against claims against you by someone else (the third party). It’s mostly used for car insurance. 

Now that you have a better understanding of what excess is in insurance, we hope you’ll feel more comfortable choosing the right cover for your situation when the need arises.

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