Have you ever read the term ‘excess’ on your home insurance policy and wondered what it means? Or how much you should be paying? Read on to find out everything you need to know in our handy guide to home insurance policy excess.
What is a policy excess?
To put it simply, your policy excess is a fixed amount that you have to pay out if you make a claim on your home insurance.
Your insurer takes your excess out of the total so you don’t get the full sum of the claim.
For example, if you have an excess of £200 and make a claim for damaged furniture worth £500, your insurer will keep the first £200 and pay you £300.
Compulsory excess and voluntary excess: what’s the difference?
Compulsory excess, as its name suggests, has to be paid when you claim. You can’t choose a no-excess policy but the price can vary between insurers.
Voluntary excess is just what it says on the tin: an optional, additional policy excess. In the event of a claim, you pay the compulsory excess plus the voluntary excess. When you choose a higher excess, your premium will decrease.
What excess should I choose?
Premium payments are a certainty. Budgeting for the premium is straightforward, whether you’re paying it in one go or in monthly instalments. You know exactly what you’ll be paying and when you’ll be paying it.
Events that lead to a claim, however, are uncertainties. Budgeting for a disaster is not an exact science. You don’t know it’s coming, and you don’t know how much it’s going to cost.
If you’re reasonably well off, increasing your voluntary excess could be an economical option. On the other hand, if a large, unexpected bill might potentially ruin you, then a lower excess (and higher premium) is probably the safer option. In some cases, voluntary excess can be changed during the term of the policy.
When choosing your level of voluntary excess, assume that you’ll need to make a claim within the insured period. Consider your ability to pay the excess.
“Why is my policy excess so high?”
A frequently asked question!
Insurance – or risk management – is about balance. We’ve looked at the balance of liability between the insurer and the insured. But the balancing act goes beyond that, to the insured party’s portion of the liability – i.e. premium plus excess.
An attractively low-premium insurance policy will, in most cases, go hand in hand with a large excess. A higher premium is associated with a smaller excess. The two are inversely related.
How to choose an excess
It’s always tempting to opt for high policy excess in exchange for a low premium, especially if you’re strapped for cash – or exceptionally optimistic and certain that you’ll never need to make a claim! (Just a word of warning: if you do feel like this, ask yourself why you’re taking out an insurance policy.)
Okay, so we’ve poked a little fun at the optimist, but there is some logic in weighing up the likelihood of a claim. For example, a home that has an outdoor light, burglar alarm, and CCTV system has a lower chance of being successfully burgled than a home with only an outdoor light. A house at the top of a hill is a less-likely candidate for flood damage than a house located on a riverbank.
When choosing your level of voluntary excess, consider:
- Your environment (physical and demographic)
- Your property (age, condition, and value)
- Your finances (what you can afford)
Ultimately, your choice must bring you peace of mind and a sense of security. Because that’s what insurance is all about.