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What is insurance excess?

Insurance excess is the amount you have to pay towards the overall cost of an insurance claim.

It’s usually a pre-agreed amount. Your insurer will then contribute the rest – up to the limit of the cover. You’ll see insurance excess on insurance products like travel, motor, home and health.

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.

For example, did you know that increasing your excess could save you money? Here, we explain how it works and things 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.  

Find out more about how much life insurance you need and what insurance you need with your mortgage.

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

How does insurance excess work?

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 in your policy.

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

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

Find out more about why home insurance is important and how to compare home insurance policies.

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

What is compulsory and voluntary excess?

There are two types of excess:

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

What is 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.

What is 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. 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.

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.