Insurance excess: what is it and how does it work?

Opting for a higher excess level on your cover may reduce the price of your premium. But what is insurance excess and when does it apply?

What is insurance excess?

It’s an agreed amount that you pay at the start of any claim you make.

Let’s say you’ve bumped into another car in the supermarket car park. Your insurer will pick up the bill, but first you have to pay a pre-agreed amount towards the repairs.

You’ll have one with all your insurance policies, apart from life insurance policies which do not carry an excess. Your insurer decides a compulsory excess amount when you take out your policy, but you can also choose to up – and sometimes reduce – your excess. Typically, the more excess you pay in the event of a claim, the smaller the amount you have to pay as a premium, so it’s all about finding the balance between your monthly costs and how much you can afford to pay if the worst happens.

What you have to pay versus what you choose to pay

  • Compulsory excess is set by your insurer and is the lowest amount that you can agree to. Your insurance company will decide the excess level by looking at your circumstances. For example, if you take out a motor insurance policy, the compulsory excess could be based on your age and driving history.
  • Voluntary excess is set by the policyholder and is added to the compulsory excess your insurance company has decided. If you agree to a higher level of excess you can usually expect your monthly premiums to be lower, but that means you’ll have to pay a larger amount upfront if you make a claim, so make sure you can afford whatever you agree to pay.

Remember, you pay the excess at the start of a claim and you’ll need to pay both the compulsory and voluntary excess.

How it works

Let’s imagine you have a home repair bill of £1,000. Your compulsory excess is £150, and you agreed to pay a voluntary excess of £200. That means you have to pay the total excess of £350 first, and the insurance company pays the remaining £650.

You usually pay the excess even if you're not at fault, but your insurer will get it back to you later if they can recover it from the responsible party.

Making changes to your excess

You can’t change the compulsory amount of excess on your policy. Your insurer comes up with this figure by looking at risk factors that make accidents more or less likely.

Your voluntary excess, on the other hand, can be changed or removed when you first take out your policy, or when you renew it.

Make sure you check the small print before you take out the policy, so you know exactly what excesses you’re agreeing to.

Keeping track of your costs

If you want to know what excess you’ll have to pay if you make a claim you should check your policy details and the terms and conditions.

Excess around the home

There are all sorts of accidents and other problems that are covered by home insurance, and each one has a different standard level of excess. Don’t forget we’re talking about compulsory excess here – you can add extra voluntary excess if you’re willing to pay more if an accident happens.

For example, if one of your pipes burst this would be classed as an 'escape of water' claim, which carries a compulsory excess of £450. And if you were unlucky enough to experience subsidence you could face a compulsory excess of up to £1,000, depending on the history of your property or the area you live in. You should think about this when you're deciding what level of voluntary excess you want to pay.

Excess on the road

With car insurance your compulsory excess cost is based on factors like:

  • Age 
  • Value of car
  • Claims history

For windscreen damage there's usually a small separate excess you have to pay.

With our motor insurance policies your excess depends firstly on the type of cover you’re paying for. Standard excess for third party, fire, and theft cover is £250, while the default for fully comprehensive policies is £350, though you can choose anything in the range from £150 to £1,050.

There are times when you don’t have to pay the excess such as:

  • if you're in an accident with an uninsured driver, and you can provide their name, contact details and vehicle reg
  • if someone else is making a claim against you

But sometimes you still have to pay upfront, so you should always make sure the level of excess you’ve agreed to is an amount you can afford to pay, no matter how safe a driver you are.

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