Introduction
Insurance policies often come with a lot of jargon that can be confusing, especially for families trying to make informed decisions. One such term frequently encountered is “insurance excess.” Understanding what excess is and how it works is crucial in managing your insurance policies effectively.
Key Terms Explained
- Insurance Excess: This is the amount you agree to pay towards a claim before your insurer covers the rest. Think of it as your contribution to the claim.
- Voluntary Excess: This is an additional excess amount you choose to pay on top of the compulsory excess. Opting for a higher voluntary excess can lower your premium, but it means more out-of-pocket expenses if you claim.
- Compulsory Excess: This is a set amount determined by the insurer that you must pay in the event of a claim.
How It Works
When you make a claim on your insurance, the excess is the portion of the claim you pay. For example, if your home insurance has an excess of £100 and you make a claim for £1,000, you’ll pay £100, and the insurer will cover the remaining £900.
When You Need It
Excess is applicable whenever you make a claim on your insurance policy. It ensures that you share the risk with your insurer and prevents small claims which can increase administrative costs for insurers and premiums for policyholders.
Example Scenarios
- Pet Insurance: If you have pet insurance and your pet needs surgery costing £500, and your policy excess is £50, you will pay the first £50, and the insurer will cover the remaining £450.
- Home Insurance: Suppose your home suffers a burst pipe. The repair costs £3,000, and your policy excess is £250. You pay £250, and the insurer pays £2,750.
- Travel Insurance: During a family holiday, you lose your luggage, which is valued at £600. With a £100 excess, you pay the first £100, and the insurer pays £500.
FAQs
What is the difference between voluntary and compulsory excess?
Voluntary excess is the amount you choose to pay in addition to the compulsory excess set by the insurer. Opting for a higher voluntary excess can reduce your premium but increases your out-of-pocket costs in the event of a claim.
Can I change my excess amount?
Yes, you can often choose your level of voluntary excess when setting up a policy, but the compulsory excess is fixed by the insurer.
How does excess affect my insurance premium?
Choosing a higher voluntary excess can lower your premium, but it means you’ll pay more out-of-pocket if you need to make a claim. Balancing the right amount of excess can help manage your insurance costs effectively.
Does every claim have an excess?
Most claims will have an excess, but it’s important to read your policy documents to understand how and when the excess is applied.
For more insights on managing insurance costs, check out our article on money-saving tips for home insurance. If you’re considering different types of insurance for your family, our guide on comparing top life insurance providers might be useful.
