What is insurance excess?
Last updated 11th July 2023
3 min read
Whether you’re looking to take out a new policy, make a claim, or simply reviewing your existing documents, you might be wondering what insurance excess is. In this article, we’ll take a look at how insurance excess works, how it affects your premiums, and what the different types of insurance excess are.
What is excess in insurance?
In insurance, excess refers to the amount of money you personally have to pay towards the total claim. The insurer will then pay the rest, up to the limit agreed by your specific policy. This helps them to protect against false claims. For example, if your excess is £100 and you make a claim for £600, the insurer would pay the remaining £500.
Unlike insurance premiums, your excess isn’t paid on a regular basis. You only pay it if you make a claim. Insurance excess applies to all types of cover, other than life insurance. Insurance excess can also sometimes be referred to as policy excess.
How does insurance excess work?
Your insurance excess is predetermined as part of your policy agreement. This is a fixed amount, regardless of the size of the claim. If the value of your claim is lower than your insurance excess, your insurer won’t pay out. It’s therefore only worth making a claim if the amount is more than the cost of your excess.
Different types of claims under the same policy may have different excess amounts. For example, your home insurance policy may specify a different excess whether you’re claiming against fire, water damage, or theft. The details of each excess will be included in your policy documents.
Does my insurance excess change the cost of my premiums?
A higher insurance excess tends to result in cheaper monthly or annual premiums, which can help to make a policy more affordable. However, it’s important to make sure you’ll be able to pay this amount of excess in the event of a claim. You can also opt to pay a voluntary excess, which we’ll look at in more detail below.
Similar to insurance premiums, the higher the level of risk to the insurer, the more expensive the excess. For example, car insurers often charge new drivers a higher excess, as they may be more likely to have an accident and therefore make a claim. If you’re able to reduce the level of risk, this may bring down your insurance excess. Home insurers may offer a lower excess for properties that are protected by a burglar alarm or CCTV.
What's the difference between compulsory and voluntary excess?
When looking at different insurance policies, you may have come across the terms compulsory and voluntary excess. Whether you choose a policy with compulsory or voluntary excess is up to you. There are pros and cons to each option, so pick whichever works best for you. Let’s take a look at the differences between the two.
What is compulsory excess?
Compulsory insurance excess is the amount that you have to pay when you make a claim. It’s decided by the insurer when you take out your policy and will usually be the same regardless of how much the claim is worth.
What is voluntary excess?
Voluntary insurance excess is an additional amount that you agree to pay in the event of a claim. It’s separate from your compulsory excess and is set in advance as part of your policy. If you take out a policy with voluntary excess, you have to pay both the compulsory and voluntary excess when you make a claim.
Voluntary excess can help to bring down your premiums and could result in considerable savings. However, a higher excess could mean that you end up paying more if you do have to make a claim.
We hope this guide has helped you to understand what insurance excess is, and how it can affect your premiums. At SunLife, we offer a range of services to help support you as you reach retirement age and beyond:
Visit these pages for more information or get in touch today to find out how we can help.
For more guides on understanding your money in retirement, visit our guide to managing your money more carefully in later life, or continue reading with the following articles: