Understanding Policy Excesses.
When you buy a home insurance policy, one of the factors you will need to consider is the ‘policy excesses’. A policy excess is the first portion of loss policyholders are responsible for paying themselves, in the event of a home insurance claim. The insurance underwriter usually sets a range of excesses when the Policy Wording is written. Policy excesses form into two distinct categories; compulsory excesses and voluntary excesses. Both of these will have a specified pre agreed value, which the homeowner must add together, to determine what proportion of any claim they are responsible for.
Most policies come with a compulsory excess, to mitigate the insurers loss on any individual claim. There may be more than one compulsory excess linked to the policy, depending upon the nature of the risk, its important to be aware of what excess is applicable to what section. In addition homeowners can choose to accept a voluntary excess, which will apply to all sections of the policy. The only reason you would choose to accept a voluntary excess is to get a reduction in the quote for home insurance, prior to purchase. Remember that the levels of excess relate to each individual insurance claim. Your policy excess will relate to a specific ‘peril’. In the UK, home insurance policy wording has has evolved over many decades, to encompass many different types of perils. These policies are designed to protect homeowners from things that are sudden and unforeseen. However despite having vast knowledge and experience of dealing with insurance claims, if something is not listed in the UK home insurance policy in the first place, the claimant will not be covered. As a result of policies being developed “reactively” often after a serious event or series of events, providing you take full accidental damage cover, it would be difficult to think of a peril that was not taken care of by a UK home insurance policy
Why do Policy Excess Levels Exist?– the underlying purpose for UK home insurance companies to put excesses in their policies, is to deter policyholders from making small claims, for relatively small amounts. Insurers are well aware the overall back office cost of processing claims, can make a policy uneconomical to even set up in the first place. In addition no insurance company wants to lose money, by paying out for lots and lots of small claims. So the basis of compulsory policy excesses is to deter relatively small amounts of claims to help maximise the home insurers bottom line. The insurance companies actuary has fast statistical data on cost of processing claims. They use this data to work out a minimum level of compulsory excess .
Specialist Home Insurance– some UK home insurance policies are specially designed for more ‘non-standard’ types of buildings. These types include : listed buildings, blocks of flats, homes located in areas where soil has contributed to subsidence problems, or if a home has been flooded in the past. For these type of homes, many policies can have higher compulsory excesses (in the thousands of pounds in the insurance company think the risks warrants it). One particular group of people that can be severely affected by excess levels, are those who have been victims of serious flooding. This is because huge losses can occur for the insurance company. Many insurers are turning away new business customers for UK homes, that have suffered floods. For existing loyal customers, (who have submitted large insurance claims related to severe flood damage), many are now seeing their excess levels rise drastically as a result.
Losing Your No Claims Discount– another major factor which could push up your compulsory excess level at renewal time, is whether or not you have made any insurance claims in the current year. For many motorists, this is a common enough buying decision. Any motor claim submitted in that year will have the effect of losing the policyholder their ‘no claims discount’. Likewise many homeowners naturally ask themselves ‘whether it is worth submitting a home insurance claim in the first place?’. Many know that under their existing policy excess, they may have to pay the vast majority of the claim value themselves – and end up losing any risk related discounts in future years. Lastly, many policy holders are put off submitting ‘borderline’ claims – as they know they will have to put themselves through a claim process, which may take up considerable amounts of their personal; time form filling and call centre queuing. Before submitting a claim, its always a good idea to the investigate the effect of the loss of any no claims bonus.
Risk Versus Reward– so when you are comparing one UK home insurance policy against another, you should review your levels of compulsory and voluntary excess. In particular you may prefer accepting the risk of paying a higher excess, by being rewarded with a cheaper home insurance quote. Many homeowners are quite happy to accept very high excesses, in exchange for a large discount on the premium. On the other hand, many more risk averse types of people, prefer low levels of excess, at a higher premium. Ask yourself if you are the sort of person who is likely to make a claim for a relatively small amount? Also try and recall when the last time you actually made a home insurance claim? If you have never made a claim, or have not done so for a large number of years, it may be because those claims were so small, you didn’t think it was worth your while. It may also be that you are careful person, who takes pride and care of your contents, and maintains your home properly. Many careful homeowners rarely submit claims – some even feel guilty about doing so! On the other hand there are people who are more than willing to submit a claim for anything over the excess level.
For a Home Insurance Quote contact Assetsure. We are able to offer insurance for a wide range of UK property types including nonstandard construction