What Is Excess in Insurance? (A Full Guide)

Whether you’ve got a home, vehicle, health or travel insurance policy, it’s likely that you have come across the term “excess”. But what is excess in insurance? Do you have to pay it? And what’s the difference between compulsory and voluntary excess?

Read on to find out the answers to these and other questions about excess in insurance.

What is insurance excess?

Excess is the amount that you have to pay if you decide to make a claim on your insurance policy. There is insurance excess on various insurance products. The excess is paid at the beginning of any claim process, and your insurance company covers the remainder of the claim amount.

The amount of excess differs between policies and insurance companies. It’s a figure that’s agreed upon when you take out an insurance policy. Your insurer will decide on the compulsory excess amount, but you can opt for a higher voluntary excess on your cover, reducing the price of your insurance premium in the process. Alternatively, if you chose to reduce your excess, your premium would increase.

How does insurance excess work?

In the case of a car insurance policy where your total excess is £400, in the event of an accident with damages to your car totalling £1000, you would pay £400 when you make a claim. Your insurance company will then cover the remaining £600. Regardless of whether the repairs cost £1000 or £3000, you still pay £400.

The amount of excess you pay is a combination of compulsory and voluntary excess.

What’s the difference between compulsory excess and voluntary excess?

Compulsory excess:

This is set by your insurer and is decided on by assessing your circumstances. In the case of car insurance, your compulsory excess will be set based on your risk level. This is determined by factors such as your age, driving history, claim history, type of vehicle, and where your vehicle is parked. The compulsory excess will make up part of the amount you will have to pay towards a claim.

Voluntary excess:

This is the amount that you choose to add to the compulsory excess that your insurance company has determined. The amount of voluntary excess you choose to add is usually capped by the insurance provider. Increasing your excess typically means your monthly premiums will be lower. It also means that in the event of a claim, you will need to pay a larger amount upfront. For this reason, it’s important to ensure the total excess you agree on is affordable.  

For example, in the event of a fire in your home, if your compulsory excess amount is £500 on your home insurance policy and your voluntary excess amount is £200, you will need to pay a total of £700 towards the cost of a claim.

Why is there excess in insurance?

Excess is a way for insurance providers to protect themselves against fraud and false claims. It is less likely that fraudsters will make false claims if they have to pay an excess on those claims.

Having to pay an excess means that there will be fewer minor claims. If there was no excess to be paid on claims, the administrative cost of handling countless small-value claims would ultimately result in higher premiums. Ultimately, having to pay an excess makes policyholders responsible for a small portion of the risk.

Excess also offers policyholders the opportunity to reduce their insurance premiums by increasing their voluntary excess.

When do you have to pay the excess?

Excess — that is, both the voluntary and compulsory excess — is usually paid at the start of a claim. Insurance companies often require you to pay the full excess before any further steps are taken in a claims process.

Sometimes your excess will be deducted from repayments to you, or you might be asked to pay the company or supplier chosen for the repairs.

Whether you have to pay your excess upfront or it’s deducted later, you need to ensure you have the total excess amount available at any given time.

Do I always have to pay the insurance excess?

Excess is paid every time you make a claim, and you usually need to pay the excess to initiate the claims process. In some instances, the excess might be refunded to you, such as when you were not at fault in a car accident.

Do I have to pay the excess if I wasn’t at fault?

You will still need to pay your excess in the event of an accident where you were not at fault. However, if it can be proven that you were not responsible for the accident, your insurance provider will attempt to claim back your excess from the other party’s insurer. This money will then be refunded to you. It’s worth discussing this with your insurance provider.

Will my excess increase if I make a claim?

If you make a claim, you might be considered a higher risk. This may result in a higher compulsory excess with the renewal of your insurance policy.

Is voluntary excess mandatory? 

As the name suggests, it’s not mandatory to add voluntary excess to your compulsory excess when agreeing on your excess total with your insurance provider. You can opt to have your voluntary excess as zero which means that when you make a claim, you will pay your compulsory excess only.

You can change or remove your voluntary excess when you first take out your insurance policy, or when you renew it each policy year.

What other factors affect the excess amount?

The circumstances surrounding your claim will also affect the total insurance excess you’re required to pay. In some instances, additional excess might be added to your standard excess. This differs between products.

Your excess amount also depends on the type of cover you have. Compulsory excess for third-party, fire and theft cover will differ from a fully comprehensive policy.

Excess on car insurance

In vehicle insurance, there are other car insurance excesses besides compulsory and voluntary. Some of these are age excess (applicable to young drivers), inexperienced driver excess (applicable to new drivers), and driver history excess. These additional excesses may or may not apply to you.

Excess on home insurance

With regards to home insurance, there could be differences in the compulsory excess depending on whether your claim is a building insurance or contents insurance claim. Different incidents also have varying compulsory excesses. For example, a theft claim and a roof damage claim are likely to have different compulsory excesses. It’s always a good idea to familiarise yourself with the details in your policy documents.

High excess or high premium: what is better?

In most cases, increasing the voluntary excess on your insurance policy will bring down your monthly premium. This could help you save money on your insurance cover. However, it’s worth careful consideration, as both options have their pros and cons.

It’s crucial that the total excess is an amount that you feel comfortable paying, every time you claim. It can be tempting to significantly increase your voluntary excess to reduce your premium, but your voluntary excess added to your compulsory excess needs to be affordable.

In some instances, it might not be worth claiming for smaller items. When making the decision, try and weigh up the price of your excess and the likelihood of your premium increasing after claiming.

What is excess insurance?

Different from insurance excess, excess insurance is a policy which covers the cost of your excess in the event of a claim. Excess insurance covers the excess you would pay on either a single policy or numerous insurance policies, such as home, car and travel insurance, depending on your choice. Excess insurance can cover both compulsory and voluntary excess.

For example, if you need to pay £450 excess on a car accident claim, you will be reimbursed that amount of money, provided that amount does not exceed the maximum amount stipulated in your excess insurance policy.

An upper limit is agreed with your insurance provider when taking out the policy. The best strategy here is to align this number with your total excess, if the excess insurance is for a single policy.  

What are the pros and cons of excess insurance?

Excess insurance can be beneficial when you have a high excess on a policy. It allows you to save on premiums on that policy. But you do need to pay a premium on the excess insurance policy, and there may be a limit to the number of claims you can have covered.

What is excess protection insurance?

Excess protection insurance is an insurance add-on which allows you to get a refund on your excess after a claim. You pay a small annual fee, and your excesses are covered. 

Details regarding excess protection vary from one insurance provider to another and will differ between products such as home excess protection and car excess protection. For this reason, it’s important to check the cover details. You might only be covered up to a maximum excess amount, meaning you will need to pay the difference. For example, if your total excess is £400, but your excess protection is £300, you’ll need to pay the difference of £100.

Quickfire summary

Insurance excess is the initial amount that you have to pay towards a claim on your insurance policy.  Your total excess is made up of two types: compulsory and voluntary excess. Compulsory excess is decided by your insurer, whereas voluntary excess is decided by you when you arrange your policy.

You can opt to pay a higher voluntary excess, which is likely to reduce your insurance premiums. But it’s important to remember that whatever you decide on, your total insurance excess needs to be affordable at any given time.

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