When you’re looking for insurance for your property, you’ll see that search results include a policy excess – an amount you have to pay in the event of a claim. Different policies have different insurance excess amounts, so what do you need to consider when choosing a policy? Here’s our guide.
Insurance excess – what exactly is it?
The Association of British Insurers (ABI) classifies insurance excess as “… the first amount of any insurance claim that the customer agrees to pay as part of the policy conditions – the insurer pays the rest.”
In other words, if you decide to make a claim on your insurance policy you must pay the excess amount specified in the policy, which is usually a small proportion of the entire amount claimed. For example, suppose your roof was damaged in a storm and the cost of the repair was £1000. If you had a £200 excess on your buildings insurance policy and you made a claim for the roof repairs, you would be responsible for the first £200 and your insurer would pay the remaining £800.
However, not every insurance policy is the same. Some policies can include different excesses depending on the cause of the damage, so it is important to look out for these when researching which policy to purchase. For example, buildings and contents policies may have a different excess applicable for accidental damage, and buildings only policies may have a greater excess applicable for escape of water and/or subsidence.
Excesses usually apply to every type of insurance you have: home or commercial property (buildings and contents), car, travel, health, animal health, business (professional and public liability) and life.
What types of excess are there?
There are usually two types of insurance excess: compulsory and voluntary.
COMPULSORY EXCESS
This will be set by the insurance company and generally is not negotiable. The price will vary according to the type of insurance you require. If you are purchasing contents insurance, for example, factors such as the amount of contents to be covered will be taken into consideration.
VOLUNTARY EXCESS
This is added to the policy and the amount can be chosen by you. Generally, the higher the voluntary excess, the lower the premium. Saving money this way may sound attractive at the time of taking out the policy, but do bear in mind that this means you will have to pay more in the event of making a claim – so make sure you would be able to afford to do this!
HOW DOES IT WORK?
Should you need to make a claim the two excess amounts (compulsory and voluntary) will be added together and deducted from the total amount claimed. Your insurance company will advise you on the process – some will deduct the excess amount from the amount they pay you, while others will ask you to pay the excess before they pay anything else associated with your claim.
All the details will be found in the small print of your policy and the ‘Key Facts’ document that your insurer must provide. This is sets out the main features of your insurance product and is required by the Financial Conduct Authority (FCA), which regulates insurance in the UK.
Some insurance excesses apply to every claim, while others may depend on the claim you are making.
When do I pay an excess?
Your excess will be payable nearly every time you make a claim, whether it is for accidental damage, subsidence, flood damage, fire damage, loss of rent or any other risk covered under your policy. It will be clearly specified on your insurance schedule, so make sure you check what excesses you’ll be liable for when researching and taking out the policy.
The excess will either be deducted from the amount your insurer pays you, or they may ask you to pay it upfront before they pay out your claim.
Would I ever not pay an excess?
Insurance companies have been known to waive excesses on some occasions but this is more common for car insurance claims than for property insurance. For some types of insurance, you can pay an excess waiver – where you pay slightly more for your policy but don’t have to pay excess in the event of a claim. This is most common for travel insurance.
Other things to consider
Make sure you read all the small print! The devil is in the detail. Can you make a claim if the insurance policy is in someone else’s name? Do you have to wait for any period of time after taking out the policy before you make a claim?
Whenever you’re looking to take out property insurance, be sure to research it thoroughly and take into account policy excess amounts, as well as ensure you have enough cover for your needs. We covered the key things to look out for in our previous blog on things to consider for property insurance.
