What is excess?

An insurance excess is a pre-agreed amount of money that your insurer will not reimburse you for if you need to claim on your insurance. In some cases, insurers will simply deduct the amount of the excess from the final settlement value of the claim. In other cases, for example, claims made against you by third parties, insurers will collect the amount of any excess from you before paying the settlement in full to the third party.

There are generally two types of excess – compulsory excesses, which are set by the insurer, and voluntary excesses, which are set by you. Insurers will often offer a reduction in the cost of your monthly or yearly insurance premiums if you choose to take a voluntary excess.

How does an insurance excess work?

Let’s say, for example, the compulsory excess on your public liability policy is £250, and you choose to accept a voluntary excess of £750. If a visitor has an accident in your business premises and makes a claim against you for £5,000, your total excess would be £1,000 and your insurer would pay the remaining £4,000 to settle the claim.

What happens if I can't pay my excess?

Be sure you can afford to pay the total excess amount on any claim made before agreeing to your policy. If circumstances arise and you cannot afford to pay, then your claim could be declined by your insurer.

If it is not declined, it’s also possible your insurer would only pay the claim amount minus the total excess. This stance will differ depending on your policy, so it’s always best to double-check.

Do I pay an excess every time I make a claim?

Not all insurance covers carry an excess; for example, employers’ liability insurance is usually excess free. However, for the majority of policy covers, you must pay an excess every time you make a claim on your policy. This is paid regardless of who is to blame – your business, the claimant, or a third party such as a thief.

However, some insurers will agree to cap the maximum number of times an excess will apply during a policy period in the event of multiple claims.

What is the difference between a compulsory and voluntary excess?

The total excess amount you pay when claiming on your insurance is sometimes split between compulsory and voluntary.

• Compulsory excess is a pre-agreed amount set by your insurer. This can vary depending on your business type and the amount of cover you buy.
• Voluntary excess is the voluntary amount you agree to pay. You can decide how much this is.

If you decide to pay a higher voluntary excess, this often means you’ll benefit from lower insurance premiums. This is because it shifts more of the liability onto you, rather than the insurer. However, voluntary excesses are less common in business insurance than in personal insurance. You also won’t normally be asked to agree a voluntary excess, unless you choose to for the purposes of reducing your insurance premium spend.

Why are some excesses higher than others?

If you select an insurance policy with a higher excess, it often means you’ll benefit from lower insurance premium costs. You will have to pay more in the event of a claim, though.

When your insurer requests a high excess amount, this could mean your policy has been evaluated as high risk, e.g. it’s more likely you’re going to need to make a claim and, therefore, more likely your insurer will have to pay.

Certain business insurance policies come with variable excesses. For example, with covers such as portable equipment insurance, some insurers apply a higher excess for certain items as standard. This is because claims for lost laptops and mobile phones are common.

Do I pay an insurance excess if I'm not at fault?

Yes, you usually pay insurance excess even if you’re not at fault. However, for certain types of insurance cover, some insurers will agree to waive the excess if another party involved in the claim has already admitted they are to blame.

How does the excess work for different types of business insurance?

Most types of business insurance allow you to tailor your excess according to your preferences – but there are a few exceptions.

Firstly, there is no excess for employers’ liability insurance. This is because this type of insurance is a legal requirement for employers and the legislation applies so that employees receive compensation in full in the event of an accident at work.

Excesses can also work slightly differently for specific covers, such as professional indemnity insurance, which is designed to cover professional negligence. For this cover, the excess may only apply if you legally have to pay compensation to the third party bringing the claim against you, but the excess may not apply to legal defence costs if your defence is successful.

Disclaimer:

Our FAQ pages provide general information and background around the topic covered. FAQ pages are reviewed and monitored periodically by our insurance experts. But the content is not intended to be read as advice and any material is for general information purposes only. If you would like advice for any content, please seek professional assistance.