If you’ve ever bought insurance before, then you’ll probably have heard the term ‘excess’. This is the amount you have to pay to kick-start the claims process. But with both voluntary and compulsory amounts, it can be difficult to know what you’re agreeing to.
How does excess in insurance work? A quick summary
Excess is…
- the amount you pay to start a claims process
- typically refunded by the insurer if your claim is successful and it’s as a result of something that wasn’t your fault
- a voluntary amount set by you and a compulsory amount set by the insurer
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 never see the money again. If a claim isn’t your fault, your insurer will typically refund any excess you’ve paid.
How does insurance excess work in business insurance?
The total excess you’ll pay is made up of the compulsory and voluntary amounts.
You’ll have to pay the excess amount on any claim related to your business.
For example:
- you have business insurance with a voluntary excess of £200
- the compulsory excess is £300
- your business premises is flooded and causes £1,500 worth of damage to your stock and equipment
Your claim is successful so your insurer pays out £1,000 (with the £500 excess deducted).
Why does insurance excess exist?
Insurance excess can help by:
- reducing the amount of small claims being made on policies
- lowering the cost of your premium as you’ll take on some of the risk
- encouraging policy holders to make claims responsibly
For example:
You dent your business van while driving it into a car park. It costs £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.
Types of excess
| Compulsory excess | Voluntary excess |
| Set by the insurer | An additional amount you choose to pay on top of the compulsory excess |
| Can’t be removed | Can lower your premium (monthly/annual costs) |
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.
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.
Increasing your voluntary excess can reduce the cost of your insurance premium – but it’s important to make sure the amount is accessible to you if you do need to make a claim.
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.
What does it mean if your insurance policy has an excess of £500?
If your insurance policy has an excess of £500, this is the amount you’d have to pay towards an insurance claim.
This means you can’t make a claim for less than this amount.
When don’t you pay excess?
You might not have to pay any excess if your claim is a result of something that’s not your fault. In this instance, your insurance company will recover the excess from the third-party.
Sometimes it’s possible to get an insurance cover without any excess to pay, or you can pay for an ‘add-on’ that means you won’t pay any excess if you make a claim.
4 key takeaways
- Excess is usually paid by you at the start of the claims process but occasionally it can be deducted from the final amount paid out by the insurer once a claim has been settled
- An insurance excess is pre-agreed between you and your insurer
- It includes both a compulsory amount and a voluntary amount – so your total excess can be quite high
- If the total cost of the claim is less than your excess, then you won’t be able to make a claim
Read more articles
- What’s the difference between comprehensive and third party insurance?
- What is business breakdown cover?
- Business guide to electric cars and vans
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