Insurance Excesses Explained: The Price You Pay When You Claim

The annual premium is not the only amount a landlord may have to pay for insurance.

When a claim occurs, the policy excess determines how much of the insured loss the landlord must fund. That figure can affect whether a smaller claim is worth making and how much cash the landlord needs before repairs can begin.

Two quotations with similar cover can therefore represent very different value if one carries substantially higher excesses.

What is an insurance excess?

An excess is the part of a valid claim that the policyholder is responsible for paying.

If insured damage costs £5,000 to repair and a £500 excess applies, the insurer would normally meet up to £4,500, subject to the policy limits, settlement basis and other terms.

If the damage costs less than the excess, there may be nothing for the insurer to pay. A £350 repair subject to a £500 excess would remain the landlord’s responsibility.

The excess does not determine whether the incident is covered. The insurer must first establish that the cause of damage falls within the policy. An excess is then applied to the amount otherwise payable.

The standard or compulsory excess

Most landlord policies include a standard excess, sometimes described as the compulsory or policy excess. It is set by the insurer and commonly applies to many types of property-damage claim.

The amount should be shown in the quotation, policy schedule or wording. However, landlords should not assume that the standard excess applies to every insured event.

Separate excesses may be shown for:

• Escape of water
• Subsidence, heave or landslip
• Flood
• Malicious damage
• Accidental damage
• Theft
• Landlord contents
• Legal expenses
• Rent protection
• Different properties within a portfolio

The schedule and wording must be read together. A prominent headline stating “£250 excess” may not describe the amount applying to the type of claim a landlord is most likely to face.

What is a voluntary excess?

A voluntary excess is an additional amount the policyholder agrees to contribute. Choosing a higher voluntary excess may reduce the premium because the landlord retains more of the financial risk.

The important word is additional. If a policy has a £250 compulsory excess and the landlord selects a £500 voluntary excess, the total contribution may be £750—not £500.

The exact calculation depends on the wording. Before selecting a voluntary excess, ask:

• Is it added to the compulsory excess?
• Does it apply to every property-damage claim?
• Does it apply on top of special excesses?
• How much premium does the higher excess actually save?
• Could the landlord comfortably fund the total amount at short notice?

Saving £60 a year may not be attractive if it adds £500 to the cost of every claim. The answer depends on the landlord’s financial reserves, property risks and claims history.

Escape-of-water excesses can be higher

Escape of water can cause extensive damage to floors, ceilings, walls, electrical systems and neighbouring properties. Insurers may therefore impose a specific excess that is higher than the standard policy excess.

Landlords should check the amount rather than assuming a burst pipe or leaking appliance will be treated as an ordinary claim.

They should also establish whether the policy distinguishes between:

• Sudden water damage and gradual leakage
• The resulting damage and repair of the failed pipe or appliance
• Trace-and-access costs and the escape-of-water claim itself
• Damage to buildings and damage to landlord contents

Insurance may cover resulting damage without paying to replace the worn or defective component that caused the leak. Wear and tear, corrosion, poor seals and gradual deterioration are commonly outside the purpose of insurance.

An escape-of-water excess can make prevention especially valuable. Regular inspections, prompt attention to small leaks, appropriate heating and compliance with unoccupancy conditions can reduce the likelihood of a much larger loss.

Subsidence normally has its own excess

Subsidence claims often involve specialist investigation, monitoring and structural work. A separate and substantially higher excess commonly applies.

The Association of British Insurers indicates that many domestic buildings policies carry a subsidence excess of around £1,000, but landlords must check their own documents because the amount can differ.

The higher excess is only one consideration. Landlords should also examine:

• Whether subsidence, heave and landslip are all covered
• Any exclusions affecting walls, drives, patios or other external structures
• Previous movement or claims
• Requirements relating to trees, drainage or maintenance
• Whether the rebuilding cost remains adequate

Cracking should not automatically be diagnosed as subsidence. If movement is suspected, contact the insurer before arranging invasive investigation or permanent repairs.

One incident can involve more than one excess

Landlords sometimes assume that one event must mean one excess. That is not always the case.

A single escape of water might damage both the building and removable landlord contents. If the wording treats these as claims under separate sections, a buildings excess and a contents excess could both apply.

Similarly, the way an insurer treats several areas of damage may depend on whether they arose from one insured incident or from separate events. Repeated leaks occurring on different dates may attract separate excesses even if they have a similar cause.

For portfolio landlords, one storm affecting several properties may also be treated according to the wording applying to each insured location. Do not assume that one portfolio policy automatically produces one excess across the entire portfolio.

Before accepting cover, ask how the insurer applies excesses:

• Per claim
• Per incident or event
• Per cause of damage
• Per property or insured location
• Per policy section
• Per period of insurance

The wording is decisive.

Practical examples

The following examples are illustrative only. Actual settlements depend on the individual policy and circumstances.

These figures assume that the claim is accepted in full and that no other limit, deduction or policy term affects the settlement.

An excess may be deducted from a cash settlement. Where the insurer appoints a contractor, the landlord may instead be required to pay the excess directly. The claims handler should explain the process.

A high excess changes the usefulness of the policy

A landlord may deliberately choose a high excess to reduce the annual premium and retain smaller losses. That can be a rational decision where adequate cash reserves exist.

Problems arise when the excess is selected purely to achieve the lowest quotation and the landlord has not considered the cost of claiming.

Suppose two policies offer broadly comparable cover:

• Policy A costs £420 with a £250 standard excess.
• Policy B costs £360 with a £750 standard excess.

Policy B saves £60 at renewal but could require an additional £500 contribution to a claim. It would take several claim-free years for the premium saving to equal that difference.

This does not automatically make Policy A better. The example simply shows why premium and excess should be considered together.

Portfolio landlords need to consider several claims

A landlord with one property might assess whether one excess is affordable. A portfolio landlord should consider whether several could be payable within a short period.

A severe storm, freezing weather or repeated escape-of-water incidents could affect more than one property. If an excess applies separately to each location, the combined contribution could be substantial.

Portfolio landlords should ask:

• Is the excess consistent across all properties?
• Do different construction types or claims histories produce different excesses?
• Would one event affecting several addresses trigger several excesses?
• Is a higher voluntary excess applied separately to every claim?
• Are sufficient emergency funds available?

The answer should form part of the portfolio’s wider risk and cash-flow planning.

Can the excess be recovered from the tenant?

Landlords should not assume that the tenant must pay the policy excess whenever damage occurs during a tenancy.

Responsibility depends on what happened, the tenancy arrangements, available evidence and the law applying where the property is situated. Damage caused by an insured event such as a storm or an accidental pipe failure is not automatically the tenant’s liability.

Where a tenant may be responsible for accidental or deliberate damage, any recovery must follow the correct process and should be supported by evidence. Deposit deductions must also take account of fair wear and tear and should not place the landlord in a better position than before the damage.

Insurance, tenant liability cover and deposit recovery serve different purposes. The same loss must not be recovered twice.

Does making a small claim make sense?

The excess is not the only consideration when deciding whether to submit a relatively small claim.

Landlords may also consider:

• Whether the incident must be notified even if no payment is sought
• The effect on future premiums or renewal terms
• Whether a no-claims discount may be affected
• Whether hidden damage could make the loss larger than it first appears
• Whether a third party or neighbouring property is involved
• Whether policy conditions require prompt notification

Do not conceal a previous incident when applying for insurance. If an insurer asks about claims, losses or circumstances that could have resulted in a claim, answer accurately.

If uncertain, speak to the broker or insurer before deciding how to proceed.

Compare quotations properly

When reviewing landlord insurance quotations, record the excesses alongside the premiums and cover limits.

A proper comparison should include:

• Annual premium and payment charges
• Standard compulsory excess
• Any voluntary excess
• Escape-of-water excess
• Subsidence excess
• Other event-specific excesses
• Buildings and contents excesses
• Whether multiple excesses can arise from one event
• Loss-of-rent limits and payment period
• Major exclusions and conditions
• Claims service and support

The cheapest premium may be attached to the highest retained risk. Equally, paying more does not guarantee a lower excess or broader cover. The documents must be examined rather than assumptions made from price alone.

Questions to ask before renewal

Before accepting a quotation, landlords should ask:

• What is the total excess I would pay for a typical buildings claim?
• Are compulsory and voluntary excesses added together?
• Which insured events have special excesses?
• Could buildings and contents excesses both apply?
• Is the excess charged per incident or per property?
• Are any excesses expressed as a percentage rather than a fixed amount?
• Can I afford the contribution without delaying urgent repairs?
• How much premium am I actually saving by accepting a higher excess?

NetRent works with Clear Insurance Management and its experienced property-insurance team to help landlords examine these details properly.

If your landlord insurance is approaching renewal, send us your existing documents. We can compare the cover, conditions, excesses and premium rather than judging the policy by one headline figure.

Telephone: 01352 721300
Email: insurance@netrent.co.uk

The premium is the price of buying the policy. The excess is part of the price of using it.

NetRent does not provide legal advice. This article represents our general understanding of the landlord insurance and rental property market and is provided for information only.