What is an insurance excess, and can it lower my premium?

When shopping around for your best insurance policy it is best to consider the excess you will need to pay. Below we have explained what insurance excess means, how to use it responsibly to lower your insurance premium, and whether excess protection is worthwhile.

An insurance excess is the amount of money you will be required to pay towards any claim you make. This amount of money is a pre-arranged figure which is determined before your insurance policy takes effect.

For example, your insured boiler at home bursts, and you file an insurance claim of £400 for it to be fixed. Now, if your excess with your insurer is set at £100, you will have to pay this amount while the insurer fits the bill for the remaining £300 balance.

Typically, there are two forms of excess in an insurance policy, compulsory and voluntary excess. 

Compulsory excess is what the insurer requires you to pay when taking out its policy. Like an insurance premium, your excess will be determined according to your provider’s own unique way of calculating your risk assessment.

For example, if you are looking to take out an insurance policy for your home, your insurer will likely look at its location, value, and your previous claims history to determine your premium. The more risk you appear to hold, the greater your excess will likely be.

Voluntary excess, meanwhile, is the amount you wish to add to your compulsory excess. People can choose to increase their total excess with a voluntary excess to reduce their premiums. If an insurer knows you will cover a larger portion of your claim then their pay-out will reduce, warranting a reduction in your premium.

It is always a careful balance when determining your voluntary excess. Commit too much and your insurance policy may not be worthwhile, commit too little and you could be faced with high premiums.

While most insurers require you to pay an excess, there are some policies, under special circumstances, where you will not be required to pay an excess to process your claim.

For example, if you are involved in a car accident which was not your fault, then your insurer may claim back the money from the person at fault or their insurer.  

As an additional product, some insurance companies let you purchase excess protection. This allows you to reclaim your excess costs you would make in an insurance claim.

For example, consider you insured your house against theft and agreed to a total excess amount of £200. In addition to this, you take out an excess protection policy at £50.

Then, within the first year, your house is burgled, and you make a claim for £1,000.

Under normal circumstances, you would have to pay £200 to process your claim. However, with an excess protection policy, this £200 would be refunded into your account, saving you £150.

Excess protection is not a legal requirement, and is purely there to give people the peace of mind that they will always be able to afford their claim.

In general, this type of policy is ideal if your insurance options are limited and you are quoted a high compulsory excess for your policy.

Otherwise, excess protection can make sense for short-term insurance policies, like car hire. If you are hiring a car abroad, it may be worth getting excess protection to cover you in case of damage, theft, or breakdown.