Managing your Insurance Premiums: Low vs High Excesses

Your insurance premiums are set based on a number of factors. There are some factors you have very little control over, such as the risk rating associated with your industry sector, but there are others where the decisions you make as a buyer of insurance can influence the amount of premium you pay. One such factor is your excess (deductible).

When purchasing insurance, you should always consider whether to opt for a lower excess (deductible) with higher premiums or a higher excess with lower premiums.

The right choice depends on your financial situation, risk tolerance, and the type of insurance you’re purchasing.

A lower excess means that if you need to make a claim, you’ll pay less out-of-pocket at that time. This provides budget certainty and peace of mind, especially for businesses or individuals who prefer not to be faced with unexpected large expenses in the event of a claim. In exchange for this lower out-of-pocket cost when a claim is made, your annual insurance premiums are likely to be higher.

If you take a higher excess, it will likely lower your annual insurance premium payments, but you may then need to pay more in the event of a claim. This option may suit those who would prefer a lower up-front cost, are more comfortable with greater uncertainty in the amount of under-excess expenses they might need to pay over the course of a year, feel confident in their ability to cover a larger upfront cost if needed, and / or those who expect to make few, if any, claims. When you take a higher excess, you also retain more control over how you manage claims under the nominated excess (as this falls outside of the insurer’s policy).

In deciding whether to take a higher or lower excess, consider how you would like to deal with low value claims, how often you expect to claim, and whether you can comfortably afford a higher excess if the need arises.

It’s all about weighing up the various considerations and choosing the right approach for you and your business.

Author: Olivia Taylor

Please contact one of our advisers if you would like further information on this article.