Insurance excess – what is it and how does it work?

When you’re asked the amount of voluntary excess you’d like to contribute towards your insurance, it can be difficult to know what you’re signing up for. And because you need to decide how much insurance excess you’ll pay before you take out a policy, it’s good to understand exactly what you’re agreeing to.

Read on to get a better idea of the differences between compulsory and voluntary excess, when you need to pay them, and why it’s important to work within your means.

What is insurance excess?

Insurance excess is a pre-agreed amount that you pay towards a claim. You’ll usually need to pay the excess to start a claim, then your insurer will begin the claims process.

Insurance excess is split into two types – compulsory and voluntary. The compulsory amount is decided by the insurer, while you choose the voluntary sum.

Even though you’ll usually pay your insurance excess straight away, this doesn’t mean you’ll pay it in the end. If a claim isn’t your fault, your insurer will typically refund any excess you’ve paid.

How does insurance excess work?

The total excess you’ll pay is made up of the compulsory and voluntary excess.

For example, if your voluntary excess is £200 and your compulsory is £300 – and the claim settlement is £1,000 – the £500 total excess will be deducted from the claim and your insurer will give you £500.

One of the main reasons insurance excess exists is to reduce the amount of small claims being made on policies. If you get a dent in your van, for example, it might cost £200 to fix in a garage. If your compulsory excess is £500, it would be more expensive to get it fixed through your insurance.

This means you’ll typically only make a claim on your insurance for events that exceed your excess. Depending on the terms of your policy, you might not be able to make a claim lower than your compulsory excess.

What is compulsory excess?

The compulsory excess is the minimum amount that you’ll pay towards a claim. It’s set by your insurer when you take out your policy and will be in your policy documents.

The amount of compulsory excess you pay can vary depending on the cover you’re making a claim on. If you have landlord insurance, for example, you might have a policy with contents and buildings insurance included.

With buildings insurance, your excess might be higher than for contents insurance, since the potential costs of a claim are higher. You should check your policy documents for more details on this.

What is voluntary excess?

Voluntary excess is the amount you’re willing to contribute towards a claim. It’s pre-agreed at the beginning of a policy and is decided by you.

As it’s voluntary, you don’t have to choose any voluntary excess if you don’t want to. But many people choose to add it to their policy because it reduces the cost of your insurance premium.

Meaning the more you voluntarily pay in insurance excess, the less you’ll pay in total for your insurance. But it will cost you more if you need to make a claim, so make sure the amount you choose is manageable and always within your budget.

How much excess should you pay?

This all depends on how much you can afford. Because the voluntary excess is added to the compulsory excess whenever you make a claim, it’s worth making sure that the total amount is manageable.

If your voluntary excess is £250 and your compulsory is £300, you’re agreeing to pay £550 towards any claim you make. If your excess is too high and you’re unable to pay it when making a claim, your insurer can refuse to file the claim or they might offer a payment plan.

Can you make changes to your excess?

You can make changes to your voluntary excess at the beginning of a policy and when you renew it, but not during. When you renew, you can increase, reduce, or entirely remove the voluntary excess.

But the compulsory excess is set by your insurer and you can’t change it. Each policy will have its own terms and conditions so it’s important to check your own to be sure.

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