Excess / Deductible (Compulsory and Voluntary)

Definition

Excess (UK) / Deductible (US): the amount you agree to pay toward any claim before your insurer covers the remaining cost.

If you claim $5,000 for water damage and your deductible is $1,000, your insurer pays $4,000. You pay $1,000.

Two types of excess / deductible

Compulsory excess (UK) / Standard deductible (US)

Set by the insurer. You cannot reduce it below their stated minimum. For standard UK home insurance, compulsory excess is typically £100-£300. For US homeowners insurance, the standard deductible is typically $500, $1,000, or $2,500.

Some perils carry their own deductible on top of the standard:

• Windstorm/hurricane deductibles in US coastal states are often calculated as a percentage of the insured value (e.g., 2-5% of dwelling coverage) rather than a fixed dollar amount. On a $400,000 home at a 2% hurricane deductible, the deductible for hurricane damage is $8,000.
• Earthquake deductibles in California are similarly percentage-based, often 10-15% of dwelling value.

Voluntary excess (UK) / Higher-deductible option (US)

An additional amount you choose to pay on top of the compulsory minimum, in exchange for a lower premium. The trade-off: you accept more financial exposure per claim, and the insurer charges you less because your expected claims cost to them is lower.

The premium-deductible trade-off

This trade-off is arithmetically straightforward and is almost never done by policyholders.

Example: a policy with a $500 deductible costs $1,400/year. The same policy with a $2,500 deductible costs $1,180/year — a $220/year saving.

If you make a claim once in 10 years, the $2,500 deductible costs you an additional $2,000 on that one claim vs the $500 deductible. Over 10 years, the higher deductible saved you $2,200 in premiums. Net saving: $200. Roughly break-even.

If you make no claims over 10 years, the higher deductible saves you $2,200. If you make two claims, the higher deductible costs you an additional $4,000 in claim exposure against $2,200 in premium savings — a net cost.

The correct deductible level depends on your claims history and your ability to absorb the deductible amount without financial strain.

What affects whether a claim is worth making

The deductible level directly affects whether a small claim is worth making at all. On a $1,000 deductible policy:

• A $1,200 water damage claim nets you $200 from your insurer. But claiming may increase your premium by $150-300/year for 3-5 years (US) or result in a changed risk profile at renewal (UK).
• The net financial benefit of claiming is often negative for small incidents.

As a working rule: claims under 2-3x your deductible amount rarely pay off in the long run. This is the industry reality that insurers are not incentivised to tell you.

How to compare quotes fairly

When comparing home insurance quotes, the deductible is as important as the premium. A $1,050/year policy with a $2,500 deductible and a $1,200/year policy with a $500 deductible are not easily compared on premium alone. Model the expected cost across your realistic claims horizon.

Most comparison platforms do not do this calculation for you.