No matter what insurance policy you have, it’s likely that you’ve seen the term ‘excess’ used in your documentation. But what exactly is it and do you need to pay it?
Whether you have a home, car or travel insurance policy, it’s likely that you’ve seen the term ‘excess’ used in your documentation. But what exactly is it and do you need to pay it?
Below, you can find all the information you need to know about how excess works and the difference between voluntary and compulsory excess.
Insurance excess is a pre-agreed amount of money that you need to pay to your insurance provider in the event of a claim, such as a car accident or a flood at home. In many cases, you’ll be asked to pay the excess immediately so that the claim process can begin. Alternatively, an insurer may deduct the cost from the total that’s owed to you at the end of the claim.
The cost of the excess can vary and will depend on whether you pay only the compulsory excess or whether there’s an additional voluntary excess, which is an option you would have chosen when you initially purchased your insurance policy.
You do not have to pay the excess on your insurance if the incident is found to be the fault of someone else. For example, if you are in a car accident but you were not to blame, you would either be refunded your excess or not be expected to pay it at all.
Other times when you don’t have to pay your excess include if you have excess protection insurance, someone else claims against you, or you’ve got third-party only insurance. However, most of these only apply to car insurance and not home, business or travel insurance.
Compulsory excess is the amount that you have to pay when you make a claim on your insurance. This figure is provided by the insurance company and cannot be changed by you.
For example, if you have a successful home insurance claim for £700 and your excess was £200, you’ll receive £500 back from the insurer. This means that, unless you paid the excess upfront, the amount is automatically deducted. The excess will usually stay the same, no matter how much the claim is for.
It’s worth noting that your compulsory excess could differ depending on whether you’re making a contents insurance or building insurance claim. It could also change depending on the type of incident. For instance, claiming for water damage could have a higher excess than claiming for stolen goods.
Compulsory excess is decided by the insurance provider, however, you can choose to add voluntary excess to your insurance. But why would you choose to do this?
Some people like to include additional voluntary excess as it can bring down your annual insurance premium. But this does mean that, should you need to make a claim, you will need to pay more overall. According to money.co.uk, increasing your voluntary excess from £0 to £1,000 could save you around £480 per year. If you don’t make a claim within these 12 months, this is a substantial saving. However, if you did need to make a claim, you’d need to pay the £1,000 voluntary excess as well as the compulsory excess, leaving you worse off than if you had a voluntary excess of nothing.
This is why it’s important to be realistic when choosing your voluntary excess sum, as it would need to be paid in the event that you make a claim. Think about the likelihood that you’ll be making a claim within the next 12 months and whether the annual saving is worth it.
In some cases, you may be better off not claiming, for example if a piece of jewellery is stolen. With the price of the excess and the increased chance of your premium increasing after claiming, you may be better off replacing or fixing the object out of your own pocket.
So how much voluntary excess would be too much? In most cases, the insurance provider won’t allow you to choose an excess over £1,000. It should be set at a reasonable amount that you would be prepared and comfortable to pay should the need arise. You should avoid thinking that you won’t claim on your insurance and select the highest voluntary excess, as you can’t guarantee what will happen in the future.
Alternatively, you could look into taking out excess protection. For a small annual fee, this will cover the cost of your excesses when you make a claim so you don’t have to pay them. You should check the cover details, as you may only be covered up to maximum voluntary excess, such as £500, so you would need to make up the additional price if your excess is £1,000, for example.
When you make a claim and you have both compulsory and voluntary excess, you must pay both of these together. Don’t be mistaken in thinking that, because your voluntary excess is likely to be higher than that of your compulsory, you only need to pay that one. The total of the two together will be deducted from the total of your claim.