The insurance policy excess is the amount of any claim made under the policy that the policyholder is responsible for, this amount is predetermined when the policy is first taken out and it may apply to individual sections of the policy or to all claims under a policy. In any claim the policy excess represents the first level of the value of a claim, for instance if a policy has an excess of £250, then the insurer is only responsible for any losses of more than £250 in value. So if a claim occurred to a value of £1000, the insurance company would be responsible for £750 after the £250 borne by the policyholder.
What is the purpose of the policy excess?
There are several reasons for policy excesses on insurance contracts, some indeed are more valid than others upon examination.
Fundamentally, the insurance company excluding smaller claims i.e. ones of lower value than the excess means that considerable savings are made in the costs of handling a multitude of small claims. Whilst this does not appear to reflect in your premium directly, it is in fact entirely correct but the policy excess is such as well established tool for insurers that the savings made in handling smaller claims are automatically reflected in the base rates.
It is suggested that the policy excess encourages policyholders to exercise more care and take a more proactive approach to their own risk management. This may have some truth in business where an increased voluntary excess is accepted by the policyholder, but there is little evidence to suggest that it routinely effects the behaviour of policyholders.
What are the benefits of a voluntary increased excess under a policy?
Agreeing with your insurer to an excess that is higher than the standard policy excess for a policy can result in premium savings. This is generally available under many classes of insurance but not all. You also need to look very carefully at the benefits your receive in premium saving against the financial downside to you in the event of a claim. Choosing a higher excess can in some circumstances make a policy “affordable” that otherwise might not be, just be careful that you fully understand the trade of between premium and cover in the event of a claim.
Can I reduce my insurance policy excess?
This option is available on a more limited range of insurance products and will increase the premium you pay. An insurer may take the view that if you are inclined to reduce the excess you feel yourself that you are likely to be making claims under a policy and consequently this may affect the premium you pay to a greater degree than might be proportionate!
What is my excess under my insurance policy?
This will differ from policy to policy and must be clearly identified to you before purchase in your quotation and then in your policy schedule. The documents will also inform you as to the types of claim the excess applies and whether the excess is increased in certain circumstances and what those circumstances are.
Advice on policy excesses
As with all areas of both business and personal insurance, if you are not sure exactly what your cover is or you have any queries regarding your policy you should seek professional advice from a broker or your insurance company. At Blackfriars we have a team of brokers on hand to assist you with any queries you may have and are always pleased to be of service to you.