Home insurance excess: choose the higher option only when the saving pays

The shared example, not an insurer quote: One UK owner-occupier renews the same buildings-and-contents cover on 3 November 2026, with identical insured risks, limits and payment method for one year. We assume a £150 compulsory excess on the relevant claim and compare £250 versus £1,000 voluntary excess: £400 versus £1,150 in total, only if the policy adds the two. Illustrative annual premiums are £360 and £240 respectively, a £120 saving. Neither premium is a market rate or an actual quotation. The calculations assume one covered claim, no other deductions, and an unchanged renewal price; in reality check the schedule for each claim type and obtain two like-for-like quotes from the same insurer.

A £1,800 covered claim produces a £400 contribution under the lower option and £1,150 under the higher. Add the annual premiums: £760 versus £1,390. If nothing happens, the high-excess policy costs £240 instead of £360. If a single £500 covered loss occurs, total costs are £760 versus £740, because both policies would leave most or all of that small loss with the owner.

These bars are calculated from illustrative prices, not an insurer tariff or real claims-frequency data. The ABI says insurers may reduce premiums for higher excesses, not that every £750 increase earns £120. Ask the same insurer for both quotes on identical terms; a tiny premium difference changes the conclusion.

Here the annual saving of £120 is 16% of the extra £750 at stake on a sufficiently large covered claim. Under a deliberately simplified one-year model with either no claim or one claim large enough to use the full excess, the break-even claim probability is 16%. This does not claim a UK household has a 16% chance of such a loss. Without a defensible household-specific estimate, it is a sensitivity test, not an instruction to buy.

A better practical test is to ask how much premium you actually avoid per pound of additional claim contribution. If your real quotes save £20 rather than our illustrative £120, the ratio falls to £20 ÷ £750, around 2.7%; if cover changes, the comparison is invalid. Do not assume the first insurer you try offers the best excess trade-off. The ABI recommends shopping around at renewal. Compare the total price and terms, not only the advertised headline premium.

Keep at least the full £1,150 applicable excess in readily available cash if choosing this example’s higher option. That cash should be separate from money already earmarked for a mortgage payment or routine expenses. The first year’s £120 premium saving cannot fund a £1,150 claim. Nor should you call it a guaranteed annual return: next year’s quote can change and claims can affect later premiums. Our one-year maths deliberately excludes future repricing.

If a claim arrives, the insurer may settle by repair, replacement or cash. The Financial Ombudsman explains that an insurer’s cash settlement can differ from the price you would pay privately. Before paying for work yourself, ask how the excess will be deducted and what proof the insurer needs. A family with only £500 in reserve should read the lower-excess argument instead of following this one.

An excess is not a blanket deductible that works identically on every incident. Check the compulsory and voluntary excesses for each section of cover, especially escape of water, flood and subsidence, and whether the policy actually adds them. The Ombudsman notes that buildings and contents claims may be treated differently, including accidental damage; the ABI lists exclusions such as wear and tear and lack of maintenance. When a loss is excluded, neither option pays it.

Choose the higher voluntary excess only if identical cover is available at a meaningful saving and the relevant total claim contribution is affordable today. If either condition fails, the calculation does not justify the risk. For more on how deductibles affect behaviour and pricing, see the economics of insurance excesses and the practical excess guide.