What is an excess in an insurance policy?

An excess in an insurance policy, often referred to as a deductible, is the amount that the policyholder must pay out of pocket before the insurance coverage kicks in. This amount is specified in the policy terms and represents a portion of the financial responsibility the insured retains in the event of a claim. By having an excess, the insurer ensures that the policyholder has some degree of responsibility for their losses, which can also help to deter minor claims and reduce overall costs for the insurer.

For instance, if a household insurance policy has an excess of £500 and a claim is submitted for £2,000 worth of damages, the policyholder would need to pay the first £500 of the claim, while the insurer would cover the remaining £1,500. This mechanism encourages individuals to be more cautious and take preventative measures, as they know they will directly bear the initial financial impact of any claims made.