An excess is the fixed sum a policyholder pays towards a claim before the insurer covers the rest. On a settled claim of 2,000 GBP with a 350 GBP excess, the insurer pays 1,650 GBP and the customer funds the excess.
In one line: An excess is the first slice of any claim that the policyholder pays before insurance contributes.
How an excess works
An excess applies each time a valid claim is made, and it is usually deducted from the settlement rather than paid upfront to the insurer. The Financial Conduct Authority requires the figure to be set out clearly in the policy documents.
For a car repair costing 1,400 GBP with a total excess of 500 GBP, the insurer settles 900 GBP and the driver covers 500 GBP. If the repair cost less than 500 GBP, claiming would have no value because the excess swallows the whole amount.
Most motor and home policies combine a compulsory part set by the insurer with a voluntary part chosen by the customer, and the two add together on every claim.
Excess vs premium
The premium is the recurring price paid to hold the policy, while the excess is the one-off contribution triggered only when a claim happens. A higher voluntary excess usually lowers the premium because the customer carries more of each loss.
Excesses do not apply to third party injury claims made against the policyholder, which the insurer handles in full.
Primary source: FCA: Insurance