If you’ve never had to go through the process of claiming on your home insurance before, then the term ‘excess’ may be new to you. Before agreeing to the terms and conditions of your policy, you will often be asked whether you want to add or amend excesses on the policy, but what are excesses and why do you need them?
In simple terms, if you are making a claim on your policy then an excess must be paid so you can be reimbursed or put back in the position you were in before the incident. The insurer won’t pay out the full amount of your claim – instead they will pay the proportion left after you have paid out your excesses. Excesses can be put in place to stop customers claiming for small scenarios such as a cracked phone screen which would affect their no claims bonus and eventually put up their premium as typically, it would be cheaper to repair the screen elsewhere for the customer.
For building and contents insurance, excesses are broken up into two categories
For building and contents insurance, excesses are broken up into two categories – compulsory and voluntary. A Compulsory excess is a fee the insurer has set that is standard in the event of a claim and cannot be modified. Compulsory excess can be found on policy schedules and typically range from £50 upwards depending on each insurer. You are obliged to pay a compulsory excess when making a claim under your insurance policy. For example, if a customer has an ongoing claim for a stolen bike worth £500 and their insurer has a compulsory excess of £200, then the customer would pay the first £200 and the insurance company would cover the rest.
The second type of excess is voluntary – one you agree to pay alongside your insurer’s compulsory excess in the event of making a claim. Voluntary excess is an amount you set and can be adapted to suit your needs and finances but it is not mandatory on your policy. A voluntary excess can range from £50-£500 and by opting for a voluntary excess as well as a compulsory means a customer will end up paying more excess in total than someone who does not include one on their policy.
Voluntary excesses leaves many customers scratching their heads as they struggle to understand why you would offer to pay more for a claim than the insurer demands. By agreeing to pay a voluntary excess on your policy, the overall insurance premium can decrease significantly depending on the insurer meaning the policy is cheaper to purchase. If a customer had an ongoing £800 claim for accidental damage to a television at home, then they would pay both their compulsory and voluntary. So if the compulsory excess was £150 and the customer chose to include a £250 voluntary, then the customer would pay out £400 and the insurer would pay out the remaining £400.
Although adding or removing voluntary excesses can create a cheaper policy, customers can forget the consequences when claiming and have to pay out significant excesses. With this in mind, it is important to work out whether a voluntary excess would be something you could afford to pay alongside the insurers compulsory if a claim was to arise.
Finally, it is important to read over your insurer’s excesses in full as often claims relating to subsidence and escape of water can have higher excesses as standard. For example, a subsidence claim can often see compulsory excesses of up to £1,000 and escape of water up to £500 or £1,000. These higher excesses can often be a shock to customers who do not understand excesses and with claims of subsidence or escape of water being on the rise, the excesses are likely to stay. In each case, it’s best to talk your options over with your insurance provider first to ensure you have peace of mind that you’re covered for the correct areas in your home.