Excess (Deductible)

An excess, also commonly called a deductible, is the first portion of an insurance claim that the policyholder must pay out of their own pocket before the insurer becomes responsible for covering the remaining amount of a loss. If a claim is smaller than the excess, the insurer typically pays nothing at all, since the entire cost falls within the portion the policyholder has agreed to bear themselves.

Insurers generally offer policyholders a choice of excess level, with a higher excess typically reducing the premium, since the policyholder is agreeing to absorb more of the risk of small claims themselves in exchange for a cheaper ongoing policy cost.

If a car insurance policy has a $500 excess and an accident causes $3,000 of damage, the policyholder pays the first $500 and the insurer covers the remaining $2,500. If the damage were only $400, the insurer would pay nothing at all, since the loss does not exceed the excess threshold.

Choosing a higher excess is essentially a bet that you will not need to claim often — it lowers your ongoing premium but increases what you pay out of pocket on each claim you do make.

An excess discourages policyholders from filing very small claims that would cost more to process than they are worth, and it reduces the insurer's exposure on every claim, both of which allow the insurer to offer lower premiums than it otherwise could.

Some policies apply a single fixed excess to any claim, while others apply a variable excess that depends on factors such as the driver's age or claims history, or a different excess amount for different types of claim within the same policy, such as windscreen damage carrying a lower excess than a full collision claim.

Because filing a claim close to the excess amount may result in little or no net payout after accounting for any resulting premium increase, policyholders often weigh whether it is worth claiming at all for relatively minor damage, a calculation that becomes part of ordinary insurance decision-making.

Many policies distinguish between a compulsory excess set by the insurer based on risk factors such as a driver's age, and a voluntary excess the policyholder chooses to add on top in exchange for a further premium discount, meaning the total excess applied to a claim can be the sum of both components combined.

Some insurers offer an excess-free or excess-reduction option as a loyalty reward for policyholders who go several years without making a claim, effectively letting a long-term, low-risk customer eliminate or shrink the excess they would otherwise have to pay on an eventual claim.

Motor insurers commonly apply a higher compulsory excess to younger or less experienced drivers specifically because statistical claims data shows this group makes claims considerably more frequently, and the higher excess both discourages minor claims and offsets some of the insurer's added underwriting risk for this segment of policyholders.

Most personal insurance policies apply the excess separately to each individual claim rather than once per year, meaning a policyholder who makes three separate claims in a single year pays the excess three times over, which is worth understanding before assuming a single annual excess payment covers every claim made during that period.

Some insurers offer a multi-claim discount on the excess itself for policyholders who make several claims in one year, partially softening this per-incident structure, though such discounts are far from universal across the industry.