What does excess mean in insurance?

At Claimscore, we like to think of an excess as a bit like a deposit. Except you only have to pay it if you make an insurance claim. All types of insurance have an excess requirement, from motor and home insurance, to health and pet insurance. There's no escaping it. But that's OK, as your insurance excess is actually a good thing. 

Read on and we'll tell you why. Plus you'll learn all this....

Why do insurers include an excess on their policies?
What is a compulsory excess?
What is a voluntary excess?
How and why can adding a voluntary excess reduce your premium?
Should you increase your voluntary excess?
Can you get an insurance policy with no excess?
What is a travel insurance waiver?
What is a zero excess car hire policy?
Who pays the excess on an insurance claim?
Why do excess amounts vary?
Can you reclaim your excess?
What if you can't afford your excess?
If you pay the excess on a claim, will your insurance increase at renewal?

Why do insurers include an excess on their policies?

What's the point? Well, the biggest reason why insurance policies include an excess, is to put people off claiming for minor damage and accidents.

If we all made a claim every time we scratched our car on a hedgerow, insurance companies would end up with far higher admin costs which would result in far higher premiums for all of us. So a key reason for an excess is to make sure people only call on their insurer when they really need them.

However, dissuading people from making minor claims isn't the only reason that excesses exist. They reduce the amount the insurer needs to pay for each claim which means some of the risk is shared with the customer. If insurance excess didn't exist, the fact is we'd all have to pay more for our insurance.

What is a compulsory excess?

A compulsory excess is the minimum amount you have to pay if you make a claim on your insurance. It's set by your insurer. 

So how does it work? If your home insurance excess was £200 and you had £3,000 of jewellery stolen, you  would have to pay £200 to your insurer in order to receive your £3,000 pay out. Your insurer can either take this before they give you your £3.000, or subtract it from the money they owe you to give you £2,800.

What is a voluntary excess? 

Your voluntary excess is the amount you agree to pay your insurer if you make a claim, on top of your compulsory excess. Because it's voluntary, you don't have to pay it, but it can be a good way to lower your overall insurance premium. In theory, the higher you set your voluntary excess, the more your premium will fall.

This can be particularly good for young drivers whose notoriously high car insurance premiums can often cost double or triple what their car is worth.

How and why can adding a voluntary excess reduce your premium?

Let's say you opt for a voluntary excess of £500. This could reduce the cost of your policy by £100 or more. This is because insurance is priced in bands. If an insurer gets lots of claims in a certain band that's only just above the compulsory excess, adding a voluntary excess that takes you out of that band will save them money. 

Your insurer will pass on a proportion of this saving  to you by reducing the price of your policy.

_{Going on holiday? Did you know that you usually have to pay an excess per person to your travel insurance company?  If your excess was £50 you might think that was reasonable, but if you're a family of four, that becomes £200 if you make a claim.}

Should you increase your voluntary excess?

Perhaps. But think carefully before you do. 

The higher your voluntary excess is the lower the cost of your policy will be. So in principal, it sounds like an easy answer. But remember to think about the risk involved. How likely are you to make a claim?

Let's look at pet insurance. If you have a 4 year-old non pedigree cat with a clean bill of health and you live on a quiet road, it's unlikely you're going to need to make a claim, so increasing your excess would  probably work in your favour.

On the other hand, imagine your 18 year-old son is looking for car insurance, having already written off his first car. Increasing his excess by a large amount could be risky, as statistically he's likely to have another accident. It's probably worth increasing it slightly, but remain cautious about how much you increase it by. It could also be a good idea to get him to enrol on an advanced driving course too.

Can you have an insurance policy without an excess?

Yes. And you can often pay an additional amount to have an excess removed. Even the compulsory one.

For example, claims for buildings burning down usually go in to the tens of thousands of pounds. Having a £500 excess, or even a £5,000 excess wouldn't reduce the number of claims being made,. If your house burns down,  you will obviously go straight through your insurance. Therefore, in this case the excess becomes redundant.

Some travel insurance companies offer policies that come without an excess but you may end up with a much higher premium because of it. If you're travelling in a big group it may be worth paying the higher premium so that you don't risk the excess per person fee, but if you're going away on your own or as part of couple, you might be better off choosing a travel insurance policy with an excess fee.

What is a travel insurance excess waiver?

A travel insurance excess waiver means that if you make a claim, you won't be charged an excess fee. Although as mentioned above, you may well pay more for the cover.

Zero excess car hire policies 

Most car hire deals include a collision damage waiver with an excess, so if you damage your car you will have to pay a minimum amount towards getting it repaired. 

You can also hire a car with zero excess. But don't be fooled into thinking you'll get off scott-free if you cause any damage. These policies could still mean you have to foot the bill for certain issues: like a tow away service, damage to wheels or windows, or minor dents. When it comes to zero excess car hire policies, always read the small print. 

Who pays the excess on an insurance claim?

9 times out of 10, the policy holder will pay the excess. But it can be paid in different ways. The insurer may want to take the excess off the amount they're giving you for the claim, or they'll ask you to pay upfront before you can receive your pay out.

The only time you might escape paying the excess is if you've been in a car accident that wasn't your fault. We'll look at this further in 'can you re-claim your excess.'

Why do excess amounts vary?

You don't have to shop around for long to see how much insurance  excesses can vary. But what's the reason for this? Well, the most obvious, is to help insurers make their policy appeal to customers over their competitors. For this reason,  they may strive to offer the lowest excess they can.

Alternatively, some insurance sectors or policies receive more claims than others. For this reason, their excesses are likely to be relatively high.

Can you reclaim your excess?

The only time you can reclaim your excess is if you are in a car accident that's not your fault. You'll probably have to pay the excess in order to kick-start the claims procedure, but the party at fault should reimburse you. If they don't, you can take them to court but this is likely to be more trouble than it's worth for what will be a relatively small sum.

What if you can't afford your excess?

Sadly, not being able to pay your excess is not an option. If you can't pay it, your insurer may refuse to settle your claim, leaving you with a hefty bill or loss. 

If you pay the excess on a claim, will your insurance premium increase at renewal?

We thought we'd save the million dollar question till last! This varies depending on the type of insurance you're talking about.

• Car insurance: this will increase by 5 - 10%
• Pet insurance: this depends on your insurer. Some will increase it, some won't. However, as your pet gets older every year, so does the risk of their injury or illness. Pet insurance typically rises every year whether you make a claim or not.
• Home insurance: this will increase by approximately 10%
• Health insurance: if you claim for a one-off injury or illness, your insurance shouldn't rise at renewal. However if you have an ongoing or pre-existing illness, you should expect it to rise.
• Travel insurance: your renewal shouldn't increase after making a one-off travel insurance claim. But never say never.

Tip: Remember. Whether your renewal goes up or not, the best way to keep your renewal premium to a minimum is to shop around. 

We hope you've found this guide useful and not found it too excessive. Sorry! We couldn't help ourselves. If you take just one thing away from the information we've shared here, make it this: it's always worth playing around with your voluntary excess when shopping for any type of insurance as it can save you hundreds of pounds. 

READ NEXT:  We have a page dedicated to all sorts of tips, tricks and advice on insurance, take a look and see what else you can learn today.