What Is an Excess in Insurance?

When you take out any kind of insurance policy in the UK, whether it’s car, home, travel or business insurance, the policy will include something called an "excess". This is a fixed amount that you agree to pay towards any valid claim you make. It’s a key part of how insurance works and can influence the cost of your premium as well as the outcome of a claim.

This article explains what an excess is, the difference between compulsory and voluntary excess, how it affects your cover, and what to consider before choosing your excess amount.

What Does Excess Mean in Insurance?

An excess is the portion of a claim that you, the policyholder, must pay yourself. Your insurer will only pay out the amount that exceeds your excess, up to the policy limit. The excess helps insurers reduce the number of minor or low-value claims and ensures that policyholders share in the cost of any damage or loss.

For example, if your insurance excess is £250 and you make a claim for £1,000, your insurer would pay £750. You pay the first £250, either by settling that part of the bill yourself or having it deducted from your payout.

Types of Insurance Excess

There are usually two types of excess on a policy: compulsory and voluntary.

A compulsory excess is set by your insurer and is non-negotiable. It’s based on factors like the type of cover, your personal circumstances, your claims history, and the risk involved.

A voluntary excess is an optional amount that you choose on top of the compulsory excess. Opting for a higher voluntary excess often lowers your insurance premium because you're agreeing to pay more in the event of a claim. However, it also means you’ll need to cover more of the cost if you do claim.

In most cases, the total excess you pay is the combined amount of both compulsory and voluntary excess. So if your insurer sets a compulsory excess of £150 and you agree to a voluntary excess of £100, your total excess will be £250 per claim.

How Does an Excess Affect Your Insurance?

The excess can have a direct impact on both your premiums and your decision to make a claim.

If you set a higher voluntary excess, you’ll usually be offered a lower premium. This can make your policy cheaper in the short term, but it may not be worthwhile if you can’t afford to pay the full excess when you need to make a claim. On the other hand, a lower excess usually leads to a higher premium but reduces your financial burden at the point of claiming.

It’s also worth considering the size of your excess when deciding whether to claim. If the cost of repair or loss is only slightly more than your total excess, you may find it isn’t worth claiming at all. That’s why it’s important to weigh up your risk and ability to cover an excess before agreeing to the amount.

Do You Always Have to Pay the Excess?

You only pay an excess when you make a claim. If you don’t claim, you don’t pay the excess. However, in some cases, you might still need to pay your excess even if the accident or incident wasn’t your fault, especially if your insurer is unable to recover the cost from a third party. This is common with car insurance claims where liability is disputed.

In some policies, such as legal expenses or certain types of business insurance, there may be no excess at all. It depends on the product and provider.

Can You Change Your Excess?

You can usually adjust your voluntary excess when taking out or renewing a policy. Some insurers may allow you to make changes mid-term, but it could affect your premium. Compulsory excess, however, is set by the insurer and cannot be changed.

Before increasing your voluntary excess to save money on premiums, always make sure you’d be able to pay it in full if you needed to claim.

Final Thoughts

An insurance excess is the amount you agree to pay towards a claim. It's made up of a compulsory excess set by your insurer and an optional voluntary excess that you can adjust. Choosing the right excess level means balancing affordability at the time of claiming with the cost of your premiums. Before you buy or renew any insurance policy, check what excess applies and think carefully about what you'd be comfortable paying if something went wrong.