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What is insurance excess and can it save you money?

If you’ve pranged your car or broken your phone, you may know all about insurance excess. But if you’ve never made a claim, you might not have given it much thought.

Either way, did you know that increasing your excess could save you some money? Find out how to do it and what to consider.

Insurance explained

Insurance can provide financial cover if the unexpected happens and things go wrong. This may include theft, loss, injury or accidental damage. 

Some types of insurance are optional – such as life insurance – but others are required by law. For example, you’ll need basic car insurance to legally drive a car in the UK.  

What you can claim, and the amount, depends on the type of insurance you have and what’s in your insurance policy (contract).

What is an excess?

If you need to make a claim on your insurance, you may have to pay some money towards the overall cost. This is known as the ‘excess’. The insurer will then contribute the rest – up to the limit of the cover. 

For example, if you want to claim £1,000 on your car insurance, to cover the cost of accidental damage, you’ll be expected to pay the excess, let’s say £250. The insurer will then contribute £750, if agreed upon in your policy. 

You usually have to pay every time you make a claim but not always. For example, if you’re in a car accident that wasn’t your fault, you would either be refunded your excess or not be expected to pay at all. 

Some insurers may have different excess amounts under one policy. For example, a home insurance policy may have £100 excess for accidental damage but a £1,000 excess for subsidence – as such claims are likely to be expensive for the insurer. 

Your policy should clearly tell you what excess you’ll need to pay and when – if you ever needed to make a claim.

Compulsory and voluntary excess explained

There are two types of excess:

  • compulsory excess (the amount set by the insurer) 
  • voluntary excess (the amount you can choose to pay)

Compulsory excess

This is the amount you have to pay towards an insurance claim. It’s set by the insurer when you take out the policy and can’t be changed. Compulsory excess can vary across policies – from zero to over £1,000.

It can be particularly high for certain types of insurance. For example, young drivers have a higher excess on their insurance, as they’re considered higher risk than experienced drivers.

Voluntary excess

With many types of policy, such as car insurance, you can choose how much excess you’re willing to pay, within a given range. 

This is an optional amount you can pay towards an insurance claim – on top of the compulsory excess. For example, if your policy has a compulsory excess of £150 and you add a voluntary excess of £100, you’ll need to pay £250 if you make a claim.

Can raising your excess save you money?

Increasing the voluntary excess on your insurance can be financially worthwhile in some cases. But you need to weigh up the pros and cons, to help you decide if it’s the right option for you.

Adding a voluntary excess can lower the cost of your insurance premium – the amount of money you pay for an insurance policy. This is because the insurer won’t have to pay out as much in the event of a claim. 

Paying a lower premium means that you can save money on your insurance cover. 

However, you should consider your total insurance excess and make sure it’s at a level you feel comfortable paying, in case you ever need to make a claim. So don’t raise your voluntary excess beyond what you could afford to pay towards a claim.

Things to consider before raising your excess:

  • you need to be able to cover the cost of the excess in the event of making a claim
  • some policies can increase the excess over time 

Bear in mind – you may not have to pay the excess upfront when making a claim – it can sometimes be deducted from the money the insurer hands over. But you’ll still need the money available, to make up the shortfall.

What is an excess insurance policy?

Some insurers offer policies that can cover the amount you pay on excess. This is known as excess insurance. These policies cover the excesses you’d pay on a wide range of other insurances, such as pet insurance, car insurance, home insurance, travel insurance and mobile phone insurance.

They work by refunding you the cost of the excess on any valid claim. For example, if you’ve made a home insurance claim and paid a £250 excess – as long as you have excess insurance that covers it, you can get a refund of £250.

Can excess insurance save you money?

Excess insurance can cover both compulsory and voluntary excess. 

It can act as a safety net if you have insurance with a high excess. It means you can have a high excess – and save on premiums – knowing that you can claim that money back, in the event of a claim.  

But excess insurance won’t cover all policies and you’ll need to pay a premium to have the policy. 

Here are 5 questions to ask yourself, to help you decide whether it’s right for you:

  1. Do your existing insurance policies carry an excess? 
  2. Do you want to reduce the risk of having to cover the cost of the excess? 
  3. Can you afford to pay that excess, before claiming it back?
  4. Does the excess insurance policy cover the different types of insurance you hold? 
  5. Can you afford to pay for an excess insurance policy? 

If the answer is ‘yes’ to these questions, you could benefit from having excess insurance.

What excess insurance does HSBC offer?

Some insurers offer excess insurance on its own. We offer it as part of our multi-insurance policy, Select and Cover, where you can choose 3 or more types of cover from £19.50 a month.

The excess protection option allows you to claim the excess back from other insurance policies, in the event a claim has been made. It includes motor, home, pet and travel insurance claims, as well as claims on the Select and Cover options that feature an excess. 

Select and Cover is available to HSBC UK customers who are registered for online banking. HSBC Excess Protection Insurance is provided by Aviva Insurance Limited.

Before you buy any insurance product, it’s important to read the policy and understand the details including costs – to make sure you get the cover you need.

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