What Is an Excess in Insurance?

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We created this webpage for business owners who want clear guidance on business and personal insurance, including what cover may be required, how policies are taxed, and how insurance costs impact a company. Our aim is to help you understand your options, manage risk sensibly, and avoid unnecessary expense or compliance issues.

An excess in insurance is one of the most common terms you will see in an insurance policy and one of the least understood. I regularly speak to people who know they have an excess but are not quite sure how it works, when it applies, or why changing it affects the price of their insurance. Many only really confront it when they make a claim and discover they need to contribute towards the cost.

In simple terms, an excess is the amount you agree to pay yourself when you make a claim. It applies before the insurer pays anything. Understanding how excesses work is important because it affects both the cost of your insurance and what you will actually receive if something goes wrong.

In this guide I will explain what an excess is, why insurers use it, the different types of excess you might see in the UK, how it works in practice, and the common mistakes I see people make. The aim is to help you make informed decisions rather than treating excess as just another number on a policy document.

What an excess actually means

An excess is the portion of a claim that you must pay yourself.

If you make a claim and the total cost is higher than the excess, the insurer pays the rest. If the claim is lower than or equal to the excess, the insurer pays nothing.

For example:

• Your policy has a £250 excess

• You make a claim for £2,000

• You pay £250

• The insurer pays £1,750

The excess applies per claim, not per year.

Why insurance policies include an excess

Excesses exist for a few key reasons.

From the insurer’s point of view, an excess:

• Discourages small or trivial claims

• Reduces administrative costs

• Encourages policyholders to take care

• Helps keep premiums lower

If insurers had to pay every minor claim in full, premiums would be much higher for everyone.

The excess shifts a small part of the risk back to the policyholder.

The difference between compulsory and voluntary excess

Most UK insurance policies include two types of excess.

These are:

• Compulsory excess

• Voluntary excess

Understanding the difference matters because you can usually only control one of them.

What a compulsory excess is

A compulsory excess is set by the insurer.

You cannot remove it and you cannot reduce it. It applies automatically if you make a claim.

For example:

• An insurer may impose a £200 compulsory excess

• This applies regardless of your choices

Compulsory excesses vary depending on:

• The type of policy

• The level of risk

• Your claims history

• The nature of the insured item

You must always pay the compulsory excess if a claim is valid.

What a voluntary excess is

A voluntary excess is the additional amount you choose to pay on top of the compulsory excess.

You select this when you take out the policy.

For example:

• Compulsory excess £200

• Voluntary excess £300

• Total excess £500

The higher the voluntary excess you choose, the lower your insurance premium is likely to be.

This is because you are agreeing to take on more risk yourself.

Total excess and how it is calculated

When you make a claim, the excess you pay is usually the total of:

• The compulsory excess

• Plus the voluntary excess

Using the earlier example:

• £200 compulsory

• £300 voluntary

• £500 total excess

This is the amount deducted from the claim payout or paid directly by you.

Many people forget that these two excesses stack together.

How an excess works in practice

An excess can be applied in two main ways depending on the type of claim.

Either:

• The insurer deducts the excess from the payout

• Or you pay the excess directly to the supplier or repairer

For example, with car insurance:

• Repairs cost £3,000

• Excess is £500

• You may pay £500 to the garage

• The insurer pays £2,500

With home insurance:

• Claim for £1,200

• Excess is £250

• Insurer pays £950

The end result is the same. You contribute the excess amount.

What happens if the claim is less than the excess

If the cost of the claim is less than or equal to the excess, the insurer will not pay anything.

For example:

• Excess £300

• Claim value £250

In this case:

• You pay the full £250

• The insurer pays £0

This is why many people choose not to claim for minor damage. Claiming would not provide any benefit and may still affect future premiums.

Types of excess in different insurance policies

Excesses appear across many types of insurance. The way they work is broadly similar but the amounts and structure can differ.

Common policy types include:

• Car insurance

• Home insurance

• Travel insurance

• Health insurance

• Business insurance

Each has its own nuances.

Excess in car insurance

Car insurance excesses are often the most visible.

You may see different excesses for:

• Accidental damage

• Theft

• Fire damage

• Windscreen claims

Windscreen claims often have a lower fixed excess or sometimes no excess at all if repaired rather than replaced.

Young drivers and high risk drivers often face higher compulsory excesses.

Excess in home insurance

Home insurance usually has separate excesses for:

• Buildings insurance

• Contents insurance

There may also be higher excesses for specific risks such as:

• Flood

• Subsidence

• Escape of water

These higher excesses reflect the higher cost and complexity of those claims.

Excess in travel insurance

Travel insurance excesses apply per person per claim.

For example:

• £100 excess per person

• Family of four makes a claim

• Each person may need to pay £100

Some policies allow you to pay extra to reduce or remove the excess entirely.

This can be useful if you expect to make a claim or want certainty.

Excess in health insurance

Private health insurance excesses often work differently.

Instead of applying per claim, the excess may apply:

• Once per policy year

• Or once per condition

For example:

• £500 annual excess

• You pay the first £500 of eligible treatment in the year

• Insurer pays the rest

This structure is designed to control overall usage rather than individual claims.

Excess in business insurance

Business insurance excesses vary widely depending on risk and cover type.

They may apply to:

• Public liability claims

• Professional indemnity claims

• Property damage

• Business interruption

Higher excesses are often used to keep premiums affordable for businesses operating in higher risk sectors.

Why choosing the right excess matters

The excess you choose affects two things:

• The cost of your insurance premium

• Your out of pocket cost if you make a claim

A lower excess usually means:

• Higher premium

• Less to pay if something goes wrong

A higher excess usually means:

• Lower premium

• More to pay if you need to claim

The right balance depends on your financial position and risk tolerance.

When a higher excess makes sense

A higher excess can make sense if:

• You can comfortably afford the excess

• You rarely make claims

• You want to reduce ongoing premium costs

• The insured item is low risk

Many people use higher excesses as a way to self insure for smaller losses.

When a lower excess is safer

A lower excess may be better if:

• You would struggle to pay a large excess

• The risk of claiming is higher

• The insured item is essential

• You want predictable costs

Choosing a high excess without the ability to fund it can create stress at the worst possible time.

Excess protection and buy back options

Some insurers offer excess protection or excess buy back.

This means:

• You pay an extra premium

• The insurer reimburses some or all of the excess if you claim

This can be useful in certain situations but it is not always good value.

You should compare:

• The cost of the protection

• The likelihood of claiming

• The size of the excess

Often it is cheaper to keep the excess and set aside savings instead.

Does an excess affect whether a claim is accepted

An excess does not affect whether a claim is valid.

If the claim meets the policy terms, it is accepted regardless of the excess.

The excess only affects how much you receive or pay.

However, insurers may discourage claims where the cost is close to the excess because it provides little benefit to the policyholder.

Does an excess apply if the claim is not your fault

In many cases, yes.

For example, with car insurance:

• You may still have to pay the excess initially

• The insurer may recover it later if they reclaim costs from the other driver

Recovery of the excess is not guaranteed and can take time.

This is a common source of frustration.

Excess and no claims discounts

Paying an excess does not protect your no claims discount.

If you make a claim that affects your record:

• You still pay the excess

• Your no claims discount may be reduced

These are separate parts of the policy.

Common misconceptions about excess

The most common misunderstandings I see include:

• Thinking the excess is paid upfront

• Assuming the excess replaces premiums

• Believing a high excess prevents claims

• Forgetting voluntary and compulsory excess add together

Reading the policy summary carefully avoids most of these issues.

How to check your excess

You can usually find your excess:

• In the policy schedule

• In the statement of insurance

• In the key facts document

Always check both compulsory and voluntary excess amounts.

Do not rely on memory or assumptions.

Changing your excess mid policy

Some insurers allow you to change your voluntary excess mid policy.

This may:

• Increase or decrease your premium

• Take effect immediately or at renewal

Compulsory excesses cannot usually be changed.

Excess and renewal decisions

Reviewing your excess at renewal is good practice.

Circumstances change and what made sense last year may not make sense now.

For example:

• Improved savings may allow a higher excess

• Increased risk may justify a lower excess

Small changes can have a meaningful impact on cost and protection.

How excess fits into overall risk management

Excess is a form of risk sharing.

You are agreeing to absorb smaller losses in exchange for lower premiums and protection against larger losses.

Thinking about excess in this way helps avoid focusing only on price.

Excess and peace of mind

Insurance is as much about peace of mind as money.

If a high excess causes worry, it may not be the right choice even if it saves money.

Equally, paying for a very low excess you are unlikely to need may not be the best use of funds.

Common mistakes people make

From experience, common mistakes include:

• Choosing the highest excess without considering affordability

• Forgetting multiple excesses apply

• Claiming for amounts close to the excess

• Not reviewing excess levels at renewal

These mistakes usually come from treating excess as an afterthought.

Final thoughts

An excess in insurance is the amount you agree to pay towards a claim before your insurer contributes. It is a key part of how insurance works and plays a major role in balancing premiums and risk.

Understanding how excesses work, especially the difference between compulsory and voluntary excess, helps you avoid surprises and make better decisions. There is no universally right level of excess. The right choice is the one that fits your financial situation, your risk exposure, and your comfort level.

In my experience, people who take a few minutes to understand their excess before they need to claim are far more confident and far less stressed when something does go wrong.

You may also find our guidance on what is insurance premium tax and what is an excess in insurance helpful when reviewing related insurance questions. For a broader overview of insurance topics affecting limited companies, you can visit our insurance help hub.