What does the 'excess' refer to in an insurance policy?

In an insurance policy, the term 'excess' refers to the fixed amount that the policyholder is required to pay out of pocket when they make a claim. This means that when a claim is submitted, the insurer will deduct the excess from the total amount payable for the claim. For example, if a policy has an excess of £500 and the claim amount is £2,000, the insurer will cover £1,500 while the policyholder needs to pay £500.

This mechanism serves several purposes: it helps to prevent minor claims that could arise, encourages responsible behavior by policyholders, and can also lower the cost of premiums—since policies with higher excess amounts generally have lower premiums. Therefore, understanding the excess is crucial for policyholders to gauge their financial responsibilities in the event of a claim.