What is an excess in insurance?
The Shearwater team decodes the common, and sometimes misleading, phrases found in insurance policies or quotations.
The first in the series looks at a 'policy excess', what this means, levels you may be expected to pay and why they're applied.
What is an excess?
The excess is the amount you have to pay yourself should you need to make a claim on your insurance policy.
The excess amount can vary between policy types, and insurance brokers will often be able to offer a range of policy excess options. In many cases a policy excess will be a route to reducing an insurance policy premium.
This means that in the event of making a claim the insured will be required to pay a pre-agreed amount of the claim value.
Types of insurance excess
Different insurance types will carry different excess levels.
For motor insurance, including horsebox and agricultural vehicles, there are two common types of excess, a compulsory excess and voluntary excess. The compulsory excess is set by the insurer and cannot be changed. Whereas, the voluntary excess is an amount chosen by the policyholder, often used to reduce the policy premium. Both the voluntary and compulsory excess are added together in the event of a claim being made.
In equine insurance, most notably horse insurance, co-insurance is becoming more common. Co-insurance is the percentage of claim value that you're responsible for paying, in addition to the policy excess. Typically, co-insurance will be a fixed percentage throughout the lifetime of the policy.
Co-insurance works by the insured paying a fixed percentage of the claim. For example, you may be required to pay 20% co-insurance. This means that after the excess has been paid you will be required to pay 20% of the claim value, with the insurer paying the remaining 80%.
Co-insurance, much like an increased excess, will be used to offset the level of risk to an insurer and bring down the premium value for the customer.