Understanding Car Insurance Excess and How It Works

What Is Car Insurance Excess?

Car insurance excess is the amount of money a policyholder needs to pay when they make a claim. It plays a key role in car insurance policies. There are two main types of excess.

• Compulsory Excess: This is a fixed amount set by the insurance company. It is based on factors such as the type of car, the age of the policyholder, and their driving history. A higher compulsory excess usually applies to drivers seen as higher risk, like young or inexperienced drivers.
• Voluntary Excess: This is an optional amount the policyholder can select. A higher voluntary excess can help reduce the overall car insurance premium.

The total excess is the sum of the compulsory excess and the voluntary amount. This total tells the policyholder how much they need to pay for a repair bill or replacement costs when making an insurance claim.

How Does Car Insurance Excess Work?

When you file a claim on your car insurance, the excess is the amount you need to pay first. For example, if the repair cost is £1,000 and your total excess is £300, you will pay £300. The insurer will cover the remaining £700. The excess applies in several situations, including theft, car accidents, and damage caused by third parties.

Types of Car Insurance Excess

There are different types of excess, including:

• Compulsory Excess: This is set by the insurer and can’t be changed. It depends on factors like the type of car and the risk profile of the policyholder.
• Voluntary Excess: This is flexible and can be chosen by the policyholder. A higher voluntary excess might lead to a lower premium.
• Additional Excess: Some insurers might add extra excess for specific risks. This can apply to drivers who have electric car insurance or those with high-performance vehicles.

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Pros and Cons of Increasing Your Voluntary Excess

Pros:

• Lower Premiums: If you pick a higher voluntary excess, your premium may be lower. This can help cut down the cost of your insurance.
• Discourages Minor Claims: A higher excess might make you reconsider filing small claims. This could help you keep your no-claims discount.

Cons:

• Higher Costs in a Claim: If there is a car accident or theft, the policyholder must pay a higher excess before the insurer provides help.
• Financial Strain: A very high total excess can make it difficult to afford when filing a claim.
• Limited Savings: Increasing the voluntary excess may reduce premiums, but the savings might not always be worth the extra costs you could encounter.

What to Consider Before Choosing a Higher Excess

Before you choose to raise your voluntary excess, think about these factors:

1. Affordability

You can pay the total excess if you make a claim. If you can’t, it might be better to choose a lower excess.

2. Type of Car

For older cars that don’t have much value, paying a higher excess is not a wise choice. This is because the cost of repairs might be less than the total excess you would need to pay.

3. Driving Habits

Policyholders who drive frequently or in dangerous areas should consider if a higher excess matches their risk level.

4. Insurance Policies

Check the policy documents. They will help you see how the excess works. This is important for various claims, such as theft or damage caused by other people.

How Much Voluntary Excess Is Too Much?

There is no one-size-fits-all answer for how much voluntary excess you should choose. A helpful tip is to select an amount that you can easily afford. This amount should also lower your premium noticeably. For example:

• A voluntary excess of £250 can reduce your premium by 5-10%.
• A voluntary excess of £500 might give you even more savings, but it could increase your costs if you make a claim.

Examples of How Car Insurance Excess Impacts Claims

Scenario 1: Small Repair Bill

• Cost of Repair: £300
• Total Excess: £250
• Outcome: The policyholder pays £250. The insurer covers the last £50.

Scenario 2: Major Damage

• Cost of Repair: £2,000
• Total Excess: £500
• Outcome: The policyholder has to pay £500. The insurer will pay the rest, which is £1,500.

Alternatives to Reducing Your Premium Without Increasing Excess

If a higher voluntary excess is not good for your finances, consider these other choices:

1. Telematics Policies

These policies are known as “black box insurance.” They monitor your driving habits. If you drive safely, you can lower your premiums. This will happen without changing your excess.

2. Vehicle Security

Installing alarms, immobilizers, and trackers can help lower your insurance cost. These devices make it less likely for theft to happen.

3. Shop Around

• Check quotes from different insurance companies to find the best deal.
• Price comparison tools can help you discover policies with lower monthly payments.
• These tools also help you view policies with fair excess amounts.

4. Combine Policies

Some insurance companies offer discounts when you combine different policies. This can include car insurance and home insurance.

5. Increase Your No-Claims Bonus

• Do not make minor claims just to boost your no-claims discount.
• This discount can lower your premium a lot as time goes by.

FAQs About Car Insurance Excess