Whether you’re insuring your home, its contents, your car or something else that’s precious to you, your insurance deductible is an essential part of your policy.
Your deductible affects everything from your monthly premiums to when it’s a good time to make a claim. So, when shopping for a policy, it’s important to understand exactly what it means for you.
What is an insurance deductible?
Your insurance deductible is a value your claim must reach before your insurer will pay out. In other words, it’s the value your insurer won’t cover.
Let’s say you have a home contents policy with a £100 deductible. If a flood caused £500 of damage, you would be responsible for covering the first £100 pounds worth. Your insurer would then pay for the remaining £400.
Insurance deductibles reduce the cost of your policy. This is because you are splitting the risk of the policy with your provider. Customers with deductibles also avoid making frequent lower-value claims, reducing costs for providers.
Insurance deductible vs Excess
Your insurance deductible and excess are the same thing. Excess is simply another word for your insurance deductible.
Deductible is the term typically used in US English, whereas excess is the traditional phrasing in British English. However, the word deductible has become used frequently in the UK too, and many insurers will refer to both.
What is a voluntary deductible or voluntary excess?
Insurers will often allow you to opt for a higher deductible on your policy in exchange for lower premiums – the monthly or annual fee you pay for your insurance.
This potentially higher deductible is called the voluntary deductible or excess.
In contrast, your policy will also have a compulsory deductible or excess. This is the value that you must accept in order to take the policy. In the event of an emergency, you will need to pay both the compulsory and voluntary excess. Your insurer will then cover the remaining costs.
Is it better to have a high or low deductible?
A high insurance deductible translates to lower costs for your policy. In its research, Confused.com found that households with a voluntary excess of £150 paid 5% less for insurance than those with no voluntary excess.
You may also pay less for insurance if you don’t have a history of claims, so many customers opt to avoid smaller claims regardless of their deductible.
On the other hand, you should remember that your deductible will have to be paid by you in the event that you make a claim on your insurance policy. A high deductible could end up costing you, especially if you are unfortunate enough to have to claim more than once in a year.
As a rule of thumb, your deductible or excess should be an amount that you will be able to afford should the worst happen.
What if my insurance claim is less than the deductible?
If your insurance claim would be for less than the value of the deductible, it would not usually be worth making a claim.
The insurer will not pay out towards your expenses,and you could lose no-claim benefits or discounts.
