In the context of an insurance policy, the “excess” is the amount you are required to pay towards a claim before the insurance company starts to cover the remaining costs.

Essentially, it’s your financial contribution towards the claim you’ve made. Excess amounts are stipulated in your insurance policy and can vary depending on the type of insurance and the specific terms agreed upon.

There are typically two types of excess payments:

1. Compulsory Excess: This is the minimum amount set by the insurance company that you must pay towards a claim. You cannot opt out of paying this amount; it is a non-negotiable part of your insurance contract.
2. Voluntary Excess: In addition to the compulsory excess, you can choose to agree to a higher excess amount when taking out the policy. Agreeing to a higher voluntary excess usually results in a lower premium. However, it also means that, in the event of a claim, you’ll need to contribute more before the insurance company’s coverage kicks in.

Example

Let’s say you have a home insurance policy with a compulsory excess of £100 and a voluntary excess of £200. If you make a claim for damages amounting to £1,000, you would first pay the total excess of £300 (£100 compulsory + £200 voluntary). The insurance company would then cover the remaining £700.

It’s crucial to set an excess level that you are comfortable with and can afford to pay in the event of a claim. While a higher excess can reduce your premium, it increases your out-of-pocket costs when you make a claim.