Home insurance excess: why I would keep the lower option if cash is tight

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.

In a claim, you generally bear the first part of the covered loss up to the applicable excess; the insurer pays the rest, subject to the policy. In our simplified example a £1,800 covered loss costs £400 under the lower option and £1,150 under the higher. Add premiums and the year costs £760 versus £1,390. With no claim it costs £360 versus £240. On a £500 covered loss, the higher excess swallows the entire loss: totals are £760 and £740. This is not a forecast of claims. It is a comparison of precisely defined outcomes.

The ABI explains that increasing the excess may reduce the premium but warns against choosing more than you can afford at claim time. The key question is not just whether £120 is attractive; it is whether the household can pay £1,150 without borrowing or delaying essential repairs.

The excess gap is £750; the annual premium gap is £120. On a single sufficiently large covered claim in this one-year example, the cheaper policy loses £630 overall. If you assumed only two outcomes — no claim or one claim big enough to use the full excess — the probability at which the options have equal expected cost is £120 ÷ £750 = 16%. This is algebra on our invented premium difference, not an estimate of your chance of claiming.

Smaller covered losses change the calculation. For a £500 loss the higher option is still £20 ahead, despite the claim. A household with repeated small losses, different claim categories, or a different premium saving cannot reuse that 16% threshold. Nor should you treat it as a licence to quote a 16% claim likelihood. The economics of excesses explains why insurers price risk-sharing differently.

Imagine the owner has only £500 of accessible emergency cash. The £1,150 total excess could leave a £650 funding gap for the owner’s share of a major repair; the insurer may deduct the excess from its settlement rather than demand it upfront. The £400 total excess leaves £100 of that cash. That difference matters more than a small expected saving if repairs need paying for before the insurer settles. Do not count investments you cannot readily sell or an overdraft you may not be able to use as an emergency reserve.

Even for an owner with savings, the money is not free: earmarking £1,150 for this particular risk reduces the buffer for a boiler failure or lost income. If that feels uncomfortable, buy the lower excess and revisit at the next renewal. Our guide to choosing an excess covers the underlying terms.

An excess does not buy cover for excluded damage. The ABI says wear and tear and poor maintenance are not normally covered, and cover during long unoccupied periods can be restricted. The Financial Ombudsman describes disputes over whether damage falls under buildings or contents and notes accidental-damage cover can differ between those sections. A £250 excess is no consolation if the loss is outside the policy.

At renewal, ask for both prices with the same cover and payment basis; inspect compulsory and voluntary excesses for buildings, contents, escape of water, flood and subsidence separately. Some perils have different excess rules, so our additive £150 assumption must not be applied blindly. Note claim limits and optional accidental-damage cover. If you cannot afford the larger applicable excess, choose the lower voluntary option even if its premium is less appealing.