Excesses – what are they and what do they mean for me?

Let’s face it, insurance is chock-full of words that are unfamiliar. If you’re not an insurance expert, understanding what you’re buying can feel pretty intimidating.

We try to make insurance as simple as possible. So, this month, we’re focussing on excesses: what they are and what they mean for you.

What is an excess?

When you need to make a claim, your insurance provider will pay to return you to the position that you were in before. However, with each claim there’s a base amount of money that you also put in. This is always the first part of every claim, and you agree on the amount you’d pay when you buy your insurance policy. This is your excess.

There are different types of excess.

Voluntary excess:

A voluntary excess is chosen by you, and you can decide to increase or decrease it depending on what you need from your insurance provider.

Compulsory excess:

This is an additional excess which the insurer may add on to your policy. If there’s a compulsory excess, it‘ll be added to your voluntary excess to make up the total amount of money that you need to pay towards any claim you make.

You can then choose if you’d like to add voluntary excess and, if so, how much you’d like.

Why do insurers charge excesses?

Insurance providers charge excesses to prevent customers from claiming on small or minor things. If providers paid for all smaller accidents, the cost of insurance would be a lot higher in order to cover all costs.

So why would I choose a high excess?

You might be wondering why you’d ever choose a high voluntary excess given that this is the amount that you need to pay. The answer is that insurance providers will usually offer you a lower premium (the cost of your insurance) if you agree to a higher excess. Of course, on the flipside, you should be careful hiking up your excess for a cheap premium. You don’t want to be hit with an amount you’ll struggle to pay if you needed to make a claim.

Some claims carry higher excess levels than others

Most claims fall within the standard category, but some particular types come with higher excess costs. Below are some examples:

Subsidence excess – As claims for subsidence can run into tens of thousands of pounds, insurance providers usually set the excess at a higher level; around £1,000. At Policy Expert, if you’re a Gold customer, our fixed excess for subsidence is much lower – £500 – and no voluntary excess is applied.

Accidental damage excess –Accidental damage claims can also come with minimum excess – if in doubt, check your policy documents.

Escape of water excess – As water leakage within homes is quite common, you typically see a higher excess for these claims.

Flood excess – Flooding is also becoming increasingly common, especially if you live in an area deemed to be ‘at risk’.

The type of excess you pay for flooding depends on where you live, and if you’ve made previous claims for flood damage and effects. If your property is in an area of flood risk, flooding may be covered by Flood Re – an initiative between the Government and UK insurers. Under Flood Re, the excess is £250 – if you’re not eligible and you’re a Policy Expert customer, your normal voluntary excess is applied.