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Business Insurance Excess vs. Excess Cover: What's the Difference?
Confused? There are two very different types of 'excess' in the world of business insurance. One relates to a policyholder's contribution towards a claim, and the other relates to extra cover if a business needs a higher limit of insurance.
Policy Excess vs. Excess Coverage
The policy excess is the amount a policyholder pays towards a claim; on the other hand, excess cover or excess of loss cover is additional coverage that sits on top of a business's primary liability cover to protect against major incidents. Here's they how each work.
Definition: Business Insurance Policy Excess
The excess on an insurance policy is the amount a policyholder pays towards a claim. In the 2026 market, typical excesses for small-to-medium businesses generally range from £250 to £2,500, depending on the sector and risk profile. While £0 excesses were common in the past, insurers now frequently mandate a minimum excess to manage rising administrative and claims costs. Higher excesses are often used strategically by businesses to secure more competitive premiums in today's high-cost environment.
Example: Business Insurance Policy Excess
- A management consulting company holds a £2 million professional indemnity policy with a £1,000 excess. Following a disputed strategic recommendation, they are sued by a client for significant financial losses. In 2026, with professional litigation and expert witness fees at record levels, the total settlement (including damages and legal costs) reaches £275,000. The consulting company pays their £1,000 excess, and the insurer covers the remaining £274,000. This highlights how even a standard consulting error can now result in a quarter-million-pound liability due to the 'inflationary' nature of modern financial loss claims.
No, not all business insurance claims are subject to an excess. For example, a professional indemnity policy excess doesn't generally apply to legal defense costs. And third party claims on a business car insurance policy don't require the policyholder to pay an excess. Beyond that, when the excess applies will vary by insurer and depends on the terms of your policy. Check your policy documents to accurately assess when an excess applies, and the size of your contribution.
Some insurers let the policyholder choose the excess they'd want to pay in event of a claim. The benefit of choosing a higher excess is that it can lower the insurance premium—a higher excess means the policyholder takes on a larger share of the risk, so the insurer charges less to issue a policy. However, a higher excess is not necessarily the best option for a policyholder if they'd have trouble covering the excess—and anyway, the money you save on the premium can be negligible.
Theoretically, if you think there's a very low risk you'll need to claim and you could easily cover the excess, then opting for a higher excess in order to lower your premium can be a good bet.
Definition: Excess of Loss Cover
Excess of Loss is additional liability insurance that sits above a business's primary liability coverage and protects against large claims that could essentially use up their primary insurance—it is also referred to simply as 'excess' cover, or sometimes as an 'excess layer'.
Excess of Loss cover is used when a primary insurer doesn't offer the limit of indemnity required by a business. The limit of insurance available in the Excess of Loss market is higher than you'll typically find in the primary market—up to £25 million, £50 million per line of business, or more.
The top-up policy only kicks in once the full amount of the underlying limit of indemnity on the primary policy has been exhausted.
Types of Excess of Loss Cover
Top-up liability cover is typically offered for the following types of products:
- Employers' Liability
- Public Liability
- Products Liability
- JCT 6.5.1. (for the construction industry)
- Professional Indemnity
- Financial Loss
What's a follow-form policy?
An excess cover policy can be dictated by its own terms and conditions; or it can be structured as a 'follow-form policy' that mirrors the terms and conditions of the underlying policy. Insurers offering follow-form policies will want to check that the underlying wording is acceptable.
How much does Excess of Loss cover cost?
An excess cover policy typically derives its premium from the primary layer, though it is subject to 'minimum premiums' that have risen since 2022. For a typical 2026 trade business, a primary £5 million public liability policy might cost £1,450; adding a further £5 million of 'Excess of Loss' (XOL) cover would likely cost around £725. While XOL remains a cost-effective way to double your protection, premiums have trended upward to reflect the fact that 'large' claims are more frequently 'bleeding' into these higher layers of insurance.
Excess of loss insurance providers can typically cover a very wide range of business types across most industries, as they take their risk calculation cue from whichever insurer sets the premium for the primary policy.
Example: Excess of Loss
- A large chemical manufacturing company maintains £15 million of excess employers' liability (EL) insurance on top of their primary £5 million layer. Following a major industrial accident in 2026, several employees sustain severe injuries. Due to a 22% uplift in Judicial College settlement guidelines and surging private care costs, the total award reaches £22 million. The primary policy covers the first £5 million (including legal fees), while the Excess of Loss policy covers the remaining £17 million. Without this secondary layer, the company would have faced a £17 million shortfall, demonstrating how quickly modern medical and care inflation can exhaust 'standard' liability limits.