Voluntary and Compulsory Policy Excess: Differences and Practical Tips

Reviewed by Neil AinsworthLast updated: February 17, 2026 12:46 pm

Image credit: Kindel Media @Pexels

When taking out an insurance policy, it’s important to understand how the excess works. The excess is the amount you, as the policyholder, must pay towards a valid claim before the insurer contributes. Broadly, there are two types of excess: compulsory and voluntary. This article explains the differences and key points to consider when choosing your excess. It is for general information only and does not constitute advice.

Understanding Policy Excess

Excesses help keep premiums proportionate by discouraging very small claims and ensuring policyholders share some of the risk. They apply across many policy types, including motor, home and private medical insurance. The level of excess influences both your premium and the amount you would pay if you make a claim. You normally pay the excess per claim (not per policy year), and some policies set different excesses for different sections or causes of loss, for example, windscreen glass on motor, or subsidence and escape of water on home insurance. When you add a voluntary excess, the total you pay if you claim is usually the sum of the compulsory and voluntary amounts shown on your schedule.

Exploring Compulsory Excess

A compulsory excess is set by the insurer and applies whenever a relevant claim is made. It is not negotiable and reflects factors such as the risk profile and the cover selected. In motor insurance, for example, younger drivers or those with certain claims or conviction histories may face higher compulsory excesses. In home insurance, specific perils (such as subsidence) often carry a higher compulsory excess than the standard policy excess. Always check your policy schedule, as amounts can vary by insurer and by the section of cover.

Understanding Voluntary Excess

A voluntary excess is an amount you choose to add on top of the compulsory excess. Selecting a higher voluntary excess usually lowers your premium because you agree to pay more of the cost if you claim. This can be cost-effective if you are unlikely to claim, but you must be comfortable with the idea that you could afford the combined excess if you did. Insurers set minimum and maximum voluntary excess levels, and the impact on price varies by insurer, cover type and individual circumstances. Request like-for-like quotes before deciding.

How policyholders typically approach excesses

Many policyholders add a voluntary excess to help reduce premiums, particularly for motor and home cover. Those who opt for higher excesses often feel confident about a lower likelihood of claiming. However, past experience is not a guarantee of future outcomes, and the right approach depends on your risk tolerance and ability to meet the excess if needed.

Understanding both compulsory and voluntary excesses, and how they combine, will help you make choices that fit your budget and risk management preferences. Review your options in the policy documents and ask your insurer or broker to clarify anything that is unclear.

Differences Between Voluntary & Compulsory Excess

The key distinction is choice. A compulsory excess is set by the insurer and cannot be altered by you; a voluntary excess is chosen by the policyholder. Your selection affects the premium you pay and your out-of-pocket costs if you claim. Remember that the total excess payable on a claim is usually the sum of any compulsory and voluntary excesses applicable.

• Compulsory Excess: This is fixed by the insurer and is non-negotiable. It is determined through risk assessment and can vary by cover type and peril. The amount you pay if you claim will usually be the compulsory plus any voluntary excess shown on your schedule.
• Voluntary Excess: This is chosen by the policyholder and can be adjusted to influence premiums. A higher voluntary excess can reduce the cost of cover, but it increases what you must pay if you make a claim, so affordability is critical.

Strategic Considerations for Choosing Excess Amounts

When selecting excess amounts, consider your risk tolerance and financial position. A higher voluntary excess may suit someone with a stable emergency fund and a low likelihood of making a claim. If meeting a higher upfront cost would be difficult, a lower voluntary excess, even at a higher premium, may be more appropriate.

Impact on Premiums and Claims

A higher voluntary excess typically reduces the premium, but the size of any reduction varies across insurers and policy types. Balance potential savings against the possibility and size of a future claim, noting that you would pay the combined excess before the policy responds.

Understanding these differences and considerations can help you choose cover that aligns with your financial goals and risk appetite. Review your choices regularly, as personal circumstances and market conditions change.

Considerations When Choosing Your Excess

Deciding on the level of voluntary excess to add to your policy requires careful consideration of your financial situation and risk tolerance. Here are some key points to consider:

1. Financial Stability: Ensure that the total excess (voluntary plus compulsory) is an amount you can afford to pay in the event of a claim. Consider your liquid savings and that you may need to pay the excess for each separate claim, sometimes before repairs or replacements proceed.
2. Risk of Claiming: Consider how likely you are to need to make a claim. If your risk is low, a higher voluntary excess might be beneficial. Review your past claim history and current circumstances when making this judgement.
3. Value of Insured Item: For high-value items, such as expensive cars or homes, assess whether the reduced premium is worth the higher potential excess in the event of significant damage or loss. Consider replacement costs and any policy limits or exclusions.
4. Long-Term Cost Savings: Estimate whether premium savings over time are likely to outweigh the extra excess you would pay if you needed to claim. Factor in how long you expect to keep the policy and your likelihood of claiming.
5. Impact of Inflation: Consider how inflation affects repair and replacement costs. Premium savings today may not offset higher future excess payments in real terms.

Additional Considerations

When adjusting your excess levels, it’s also wise to consider the following:

• Insurance Market Trends: Stay informed about trends in pricing and excesses, but base your choice on your own needs and budget. Insurer approaches can differ and may change over time.
• Personal Life Changes: Anticipate any significant changes in your life that might affect your risk level or financial situation, such as buying a new home, changing jobs, or expanding your family.
• Emergency Funds: Ensure you have an emergency fund in place. This can cover unexpected expenses, including any excess payable in the event of a claim, reducing the need to compromise on other financial commitments.

By carefully assessing these factors, you can make a more informed decision about the voluntary excess level that best suits your needs and circumstances, in line with sound financial planning and risk management practices.

Getting Regulated Help With Your Decision

Choosing the right balance between voluntary and compulsory excess can be nuanced. An FCA-authorised insurance broker, or, where relevant, a financial adviser, can explain how different excess levels affect premiums and claims and help you compare policies on a like-for-like basis.

Whether you want to manage costs without undermining cover or you have a more complex situation, regulated guidance can help you make an informed decision.

At FinancialAdvisers.co.uk, we connect users with FCA-authorised and regulated advisers and brokers. They can help you understand your options and the trade-offs involved. No personal recommendation is given in this article.