What is an excess?
An excess is the first part of any claim that you will have to pay. For example if you claim for a new carpet on your home insurance and it costs £500. If you have a compulsory £50 excess and a voluntary £150 excess you will only receive £300 from the insurance company as they will deduct the excess from your claim. A high excess combined with losing your NCD may mean you don’t want to claim on your insurance if something happens.
What is the difference between a compulsory excess and a voluntary excess?
There are two types of excess that may apply to your insurance policy. The first is a compulsory excess:
This is part of the policy that you have chosen. It is stipulated by the insurer that you will have to pay the first part of your claim. So if your policy has a compulsory excess of £50 you will have to pay the first £50 of any claim.
Many policies will have different compulsory excesses that apply to different parts of the policy. A good example of this is that its very likely that your buildings insurance will have a much larger excess that applies to subsidence claims. Often this is £1000.
The second type of excess is a voluntary excess:
This is the extra excess that you agree to pay in order to reduce your premium. This can be a good way to reduce your premium but if you claim you will have to pay this part of the claim as well as any compulsory excess that is part of the policy. When you compare insurance premiums make sure you consider all the excesses that apply to the policy as some insurers and price comparison sites will use very large excesses when they show the prices. This is done to make the premiums cheaper but obviously could be expensive if you need to claim. It is common practice to quote on the bases of a £300 or £350 voluntary excess.
What to watch for
There are a couple of things to look out for when thinking about how much of an excess to volunteer.
- Firstly, remember it's additional to any compulsory excess that applies and make sure you are comfortable with the amount you will have to pay.
- Secondly, don’t always think that taking a high excess will get you the cheapest insurance. Some insurers use the amount of an excess as an indicator of your attitude to risk, let me explain. If you take a £750 excess on your car insurance then you may be happier to take risks than someone who will only be prepared to take a £400 excess.
So when you are shopping around for insurance try different excess amounts to get the right balance between the premiums you have you pay and the excess you agree to.