What Is Compulsory Excess and How Does It Work?

Insurance policies often involve a concept called “excess,” which is the initial portion of a claim that a policyholder is responsible for paying. This arrangement means the insurer covers the remaining costs once the policyholder’s contribution is made. Within this framework, compulsory excess represents a specific, predetermined amount that forms a fixed part of the overall payment.

What is Compulsory Excess?

Compulsory excess is a non-negotiable, fixed amount determined by the insurance provider that a policyholder must pay when making a claim. Insurers implement compulsory excess for several reasons, primarily to share risk with the policyholder and discourage the submission of minor or frequent claims. By requiring the policyholder to cover a portion of the claim, insurers reduce the administrative burden and costs associated with processing small incidents.

This type of excess is commonly found in various insurance policies, including car insurance, home insurance, and sometimes health or travel insurance. The specific amount of compulsory excess can vary based on factors such as the type of policy, the insured item, and the policyholder’s risk profile, such as age or driving experience for auto insurance. For example, younger or less experienced drivers might face a higher compulsory excess due to their perceived higher risk.

Components of Your Total Excess

The total amount a policyholder pays on a claim typically comprises two distinct parts: compulsory excess and voluntary excess. Voluntary excess is an additional amount that the policyholder willingly chooses to pay on top of the compulsory excess. Policyholders often opt for a higher voluntary excess in exchange for a lower insurance premium. This choice allows individuals to influence their premium costs, balancing a lower upfront payment with a potentially higher out-of-pocket expense if a claim arises. The total excess payable for any claim is therefore the sum of both the compulsory excess and any voluntary excess selected.

How Compulsory Excess is Applied

When a claim is approved, the compulsory excess, along with any voluntary excess, becomes the policyholder’s initial financial responsibility. This payment can be made directly to the repair facility or service provider, or the insurer may deduct this amount from the total payout. For instance, if a car repair claim totals $1,000 and the compulsory excess is $200, the policyholder pays $200, and the insurer covers the remaining $800.

It is important to understand that the compulsory excess applies per claim. This means that for each separate incident for which a claim is filed, the policyholder is responsible for paying the excess amount.