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What does excess mean in insurance?

| Insurance

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.

What is insurance 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.

What is compulsory excess?

Compulsory excess is the amount that you have to pay when you make a claim on your insurance. This figure is confirmed by your provider when you take out your policy and will be written down in the policy documentation.

For example, if you have a compulsory excess of £200 on your home insurance, and you successfully make a claim for £700, your provider will pay the outstanding £500. 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. You should check your policy documents for further details.

What is voluntary excess?

Voluntary excess is an amount that you’ve pre-agreed to pay with your insurance provider should you choose to make a claim. This fee amount will have previously been decided by you when you took out the policy, 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, however, it does mean that, should you need to make a claim, you will need to pay more overall. According to money.co.uk[1] , 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 successful 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 lower value items. For example if a lamp is accidentally knocked over and broken. With the price of the excess combined with the chance that your renewal premium will increase after claiming, you may be better off replacing or fixing the object out of your own pocket.

How does insurance excess work?

When you start the claims process, the insurance excess usually needs to be paid before any further work can begin. In some cases, the insurer may agree to deduct the cost from the total that’s owed to you at the end of the claim. If the total cost of repairs is less than your excess, you won’t be able to claim through your insurance and, in the case of car insurance, you could instead use the money you would have paid for the excess to a garage to fix your car.

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 too, as explained above. If you need to pay voluntary excess, you will have chosen this option when the policy was first taken out.

Do you have to pay both compulsory and voluntary excess?

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.

How much voluntary excess should I pay?

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. This is so, in the event that you do need to make a claim, you can make the necessary payment.

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 still need to pay the difference between this maximum excess and the total excess required by the provider. For instance, if the total excess is £1,000 and your excess protection covers you for up to £500, you’d still need to pay a further £500.

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

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, if you’ve already paid it, or not be expected to pay it at all.

There are other examples of when you don’t have to pay your excess, including:

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