An insurance policy excess is a feature designed to give you some control over your premiums by leaving some of the risk with the customer. An insurance policy will have an excess amount for each type of cover and, if a claim is made, this excess is deducted from the payment made by the insurer.

As an example, if a home contents policyholder makes a claim for £5,000 after a burglary but has a £500 excess, the insurance firm will only pay them £4,500. The actual excess amount may depend upon the type of cover and it’s small print and be applied to a particular claim or be an annual limit.

From the insurers point of view, the policy excess achieves two things. It allows them to offer customers the option to reduce their premiums by agreeing to accept a higher excess amount. Secondly, it also reduces the amount of potential claims as, if a claim is relatively small, the policyholder may be worse off by claiming if the size of the payout is small after deduction of the excess together with the loss of any accrued no claims discount.

The most important thing to remember about an insurance policy excess is that it is usually a flat rate rather than a proportion of the cover. Also, regardless of the size of a claim, the excess will be deducted from the final payout received by the policy holder which can reduce the benefit of making smaller claims.

The amount of standard excess you are liable for depends upon the insurer, type of cover you choose and your individual circumstances. For example, many car insurance providers have a complusory excess for young drivers as they are more likely to claim on their policy.

With medical insurance, whether for a human or a pet, it is worth watching out for annual excess limits. Where these apply, the claimant may have to pay an excess every year for an ongoing claim. This would apply in a situation where a condition develops and requires treatment over the course of two or more years. Even though only one claim is made, the claimant would still have to pay the excess each year.

The level of impact an excess has in the event of a claim depends on the type of insurance. For example, if claiming on a home insurance policy and having the payout reduced by the excess, the policyholder has the option of simply sucking it up and not replacing all of the stolen goods. This leaves them without the replacements, but doesn’t involve any expenditure. Things differ with a motor insurance claim where the policyholder may have to find the excess amount from their own pocket to get their car replaced or repaired.

One little known way to reduce some of the risk posed by your excess is to insure against it using an excess insurance policy. This has to be done through a different insurer but works on a simple basis: by paying a flat fee each year, the second insurer will pay out a sum matching the excess if you make a valid claim. Prices vary, but the annual fee is usually in the region of 10% of the excess amount insured.

When considering such a cover, it is extremely important to check the terms and conditions carefully. For example, an excess insurer may pay out whenever your primary insurer accepts a claim but there are likely to be certain restrictions imposed such as a limited number of claims per year. Therefore, always check the small print to be sure.

Author Bio: As well as reading the small print on any policy you should also read comments and feedback from existing customers of the insurers you are comparing. You can find hundreds of unbiased reviews on the most popular providers of car insurance online and more at http://www.uk-insurance-index.co.uk.

Category: Finances
Keywords: policy excess, insurance excesses, claim