Insurance explained - what is an excess and when do I have to pay it?
Insurance companies can sometimes throw words and phrases around assuming everyone knows what they mean. Here we explain what excesses are.
In short, an excess is the amount you agree to pay towards a claim on your insurance. There are different types of excess and it's important you understand them so you know what you're signing up for when choosing an insurance policy.
What are the different types of excesses?
Typically, there are two types of excess: compulsory and voluntary. Compulsory excesses are ones that you can't change - they are fixed amounts that will always apply. Voluntary excesses are just that - voluntary - so you can change them up and down, or even remove them completely, it's entirely your choice. Sometimes compulsory excesses and voluntary excesses are added together to give you a total excess. The insurer should make this clear to you when they do this, but you need to mindful of it.
Why does there have to be an excess?
There doesn't always have to be an excess, but excesses are designed to dissuade small claims. Dealing with low value claims is really inefficient for insurance companies which in turn leads to higher costs which then translate into higher premiums for customers.
When do I pay an excess?
You'll only be asked to pay an excess when you make a claim. Sometimes you'll be asked to pay the excess upfront to start the claim process, and other times the insurer will just deduct the excess from their claim payment to you. If the claim isn't your fault, such as on car insurance if someone else crashes into your car, your excess will normally be returned to you when the insurer recovers their costs.
Do different claim types have different excesses?
Yes. Policies can include several different excesses depending on the claim type. On home insurance, expect to see compulsory excesses for things such as subsidence and escape of water, and on car insurance you'd normally see compulsory excesses for windscreen repair and replacement. These claim types wouldn't normally have a voluntary excess to add on top though. Bear in mind on car and van insurance that different drivers might have different excesses, too.
Is it worth adding a voluntary excess to my quote?
When you add a voluntary excess to your quote, you're essentially saying to the insurer that you're not going to be claiming for anything lower than the cost of your excess. As a result, you'll normally get a discount off your premium, but you need to make sure you only ever set the amount at a level you know you'll be able to pay if you need to make a claim. Voluntary excesses aren't always available - it depends on the insurance product and the insurer.