Just What Is An Excess?

So Just What Is This “Excess” All About…

Simply put, if your claim is £1000 and you have a £100 excess, then you will receive a payment of £900. If I could leave it at that, this would be a very short post, so lets move on to the “not quite so simply put, but really important you should know” bit

A Tale of Two Parts

The excess on your policy, and it can be any type of policy, is important in two ways. Firstly it effects the premium you pay. All policies will come with a standard (or compulsory) excess that the insurance company feels is appropriate to that particular policy.

From the insurers point of view, the excess acts as a deterrent for small claims and as a way of having another string to their bow when trying to make their premiums more competitive. Typically, on a house insurance policy, the excess may well be around the £100 mark. However, in many cases you may have the opportunity to vary that and choose to have a larger excess in return for a lower premium. 

You need to be careful here, because there are couple of ways this can be done. The easiest is by just varying the excess. The £100 excess becomes a £200 excess and in the event of a £1000 claim you will now get £800. The “are they being a bit sneaky” way, is to take advantage of an insurers option to have a “voluntary” excess. In this scenario, you will be asked if you want a “voluntary” excess and if so how much. You have decided you are happy to have a £200 excess, so tick the “£200” box. What you have actually done is agree to a £200 excess IN ADDITION to the standard £100 excess. Your £1000 claim is now minus both the standard and voluntary excess and you are now looking at receiving £700. Fine if you are aware of that from outset, a little less fine if it comes as a surprise.

The second way an excess influences you policy is more subtle. lets stick with the standard excess of £100 on a contents policy, but instead of a £1000 claim, it is much lower. In theory, you can make a claim of £101 with a £100 excess and get a cheque for £1. I’m taking a guess here that nearly all of you would think submitting a claim that would give you £1 probably isn’t worth it. But where would your cut off point be? You may feel a claim for £140 less £100 is worth it, but a claim of £135 less £100 isn’t. There is no right or wrong here, it is entirely down to how you feel about it. What is true is that the vast majority of people do not make claims that would get them a payment, but, for many reasons, they don’t bother. This is why I say that the amount of an excess on a policy has a real influence on whether you even bother to claim or not.

I Bet You Don’t Have an Excess on Your Policy Anyway…

Hang on a minute, didn’t I previously just write about what the typical excess was on a policy? Yes I did and I am now being a little pedantic. we all refer to the excess being on the policy, it is the way we all talk.

However, in truth, in the majority of cases an excess is applied TO EACH SECTION OF THE POLICY.

Let me give an example, your home is insured and the building is correctly covered for £250k and the contents for £50k. You have a small fire which results in minor damage to the building which will cost £2000 to repair and you lose some possessions which will cost £500 to replace. You believe you have a £200 excess, and you are correct. However, you didn’t know that the excess would be applied to both the Buildings section and the Contents section. This results in your total claim being £2500 minus two lots of £200 and not just the one lot of £200 you were expecting.

In order to avoid this type of misunderstanding, you must read the policy documents and ask questions before any problems occur. It is easy then to make sure you have the cover that you want with the conditions you understand and accept.

My Excess is Higher Than the Value of My Car!?

Yes that can and does happen. Especially to young drivers who can often find that they are subject to an additional compulsory excess on top of the standard compulsory excess. I have seen people under 21, have policies with a compulsory £250 excess plus an additional compulsory “young driver” excess of £400. If they have just spent £600 on their first car, then the slightest knock will write the car off and leave them with nothing.

It really does seem unfair, however it needs to be understood that the value of the car is only a part of what the insurance covers. A 15 year old vauxhall corsa worth £300 can still do a lot of damage to a brand new BMW in an accident. If injuries are involved then the payout can be sky high.

Why is the Excess £1000 or More for Subsidence Claims?

If you have buildings insurance you will see that the excess for claims of subsidence is £1000 or more. Subsidence is when structural damage occurs to your property due to ground movement, often leading to major remedial work having to be undertaken. Claims of this type can run into tens of thousands of pounds and can involve you moving out while the work is done. The much greater excess that is put on subsidence claims reflect the much higher claim value that is inevitable. Although it seems a lot, if you were unlucky enough to have such a claim you would probably feel that £1000 is a small price to pay for such a disastrous event.

Urban Myth…

There is a widespread belief that making a claim will inevitably lead to the premium being increased at the next renewal. While it is almost certainly the case following a car insurance claim where the No Claims discount has not been protected, it is not always the case for home or business insurance.

It’s not the Making of the Claim…

While it is quite legitimate to weigh up whether it is economically worthwhile making a claim or not, please remember that the questions on the insurance application form ask whether you have experienced any incident that could have given cause for a claim. If you do not tell your insurer of any incident for which you could have claimed, then the insurer is within its rights to decline any subsequent claim or just refuse cover.

In Conclusion…

As always, read the terms and conditions of your policy and especially the insurance schedule which will set out the amount of excess for each section.

When getting a quote, play around with different levels of excess that you could comfortably afford in the event of a claim and see what difference it makes to the premium.