What is Excess for Car Insurance? Ultimate Guide
November 7, 2023
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Whether you’re taking out your first ever insurance policy or you’re a seasoned driver looking to find a better premium, understanding your car insurance excess is a highly important first step. After all, if you ever find yourself in the unfortunate position of having to make a claim on your car insurance, you’ll be obliged to pay your compulsory excess, as well as any voluntary excess that you’ve agreed to when taking out your policy.
In the following guide, we’re going to go over absolutely everything you need to know about car insurance excess; what it is, how it works, how much you have to pay, and how much you can choose to pay if you want to bring your monthly premiums down. Let’s take a look!
Just like excess in any other type of insurance policy, car insurance excess serves as something of a guarantee for your insurance company, and refers to a fixed sum of money that you, the policyholder, are required to pay when making a claim. Essentially, it's the initial amount for which the policyholder is responsible before the insurance company contributes to the costs of a claim.
There are two types of car insurance excess: compulsory and voluntary. Compulsory excess is set by the insurer (based on a number of variable factors) and is non-negotiable, while the voluntary excess is chosen by the policyholder and can be adjusted to potentially lower the cost of their monthly insurance premium. However, it's crucial to strike a balance: while a higher excess can mean a lower premium, it also means greater out-of-pocket costs in the event of a claim.
So, what’s the purpose of it? In short, the excess structure is designed to deter policyholders from filing small or minor claims, while also being designed to reduce the number of fraudulent or inflated claims. When a driver has to bear a portion of the risk, not only will they typically be careful on the road, but they’ll also take care to pay attention to vehicle maintenance, both in an attempt to reduce the possibility of making a claim.
For example, let’s imagine that your combined compulsory and voluntary excess is set at £300. Now, let’s imagine that you get into a minor car accident and your car needs £800 worth of repairs. You’d be obliged to pay for the first £300, and your insurance company would foot the bill for the remaining £500.
Let’s look at the same accident example but this time with a higher excess. Imagine your compulsory excess is £250, and you volunteer an extra £500 excess in order to lower your premium. This would mean that of the £800 in repair costs, the insurer would only end up paying £50. However, the upside to this is that you’d likely lower the cost of your monthly premiums, meaning you’d potentially recoup this £800 over the course of several years.
As we mentioned briefly above, compulsory excess is a non-negotiable sum, and is a fixed amount set by the insurer that you must pay whenever you make a car accident insurance claim. This figure tends to be determined by the insurer based on various risk factors, including your age, driving experience, and the type of vehicle you’re looking to have insured.
For example, younger drivers with little-to-no experience are typically seen as higher risk: according to UK government figures, young male drivers are four times more likely to be killed or seriously injured on the road than drivers aged 25 years or older. This is why first-time drivers usually find their compulsory excess to be higher than more experienced, older motorists.
Voluntary excess, on the other hand, is the discretionary amount that you can choose to contribute in addition to the compulsory excess, and doing so is typically viewed positively by car insurance providers. This is because a higher fixed sum is a testament to your own willingness to share a greater portion of the risk; by offering a higher figure, you’re showing confidence in your own ability to keep both yourself and your car safe on the road.
There’s also financial benefits, as a higher voluntary excess may reduce the cost of your monthly premiums and save you money in the long run. That being said, it’s essential to only put forward a realistic voluntary excess sum; after all, you’ll be obliged to pay the full sum in the event of a claim.
So, how does your excess affect any potential claims? It’s simple: when a claim is made, the excess amount directly influences the claim process and the ultimate payout. It’s a question of mathematics: if the cost of the repair is less than the total excess, you as the policyholder will be liable for the full repair cost. For some, this is the downfall of offering a higher excess; for minor or small claims, you might end up paying out of pocket, rendering your car insurance policy effectively null.
However for more substantial claims, the excess is only the first payment towards the cost, with the insurer covering the remaining balance. Note that it’s important to understand that irrespective of fault, you’ll still have to pay excess, although in instances of non-fault claims, there is a potential for reimbursement. However, this will be subject to the terms of the insurance policy and the success in recovering costs from the at-fault party.
Excess amounts are inextricably linked to insurance premiums, and selecting a higher voluntary excess is a strategic move often employed by drivers looking to lower their premium costs. It reflects a greater self-assumed risk which, in turn, reduces the risk for insurers, meaning drivers are rewarded with lower premiums. However, it’s a personal gamble: whenever you’re considering adding voluntary excess to your claim, don’t forget that you’re potentially increasing the financial burden in the event that you need to make a claim.
Conversely, opting for a lower excess increases the cost of your monthly premium, creating a smaller financial hurdle at the point of claim but a larger ongoing cost. When it comes down to making the choice, it’s important to assess your personal finances, and how easily you’d be able to pay your excess if your vehicle sustained significant damage.
When it comes to balancing your excess against your premium, it’s all about finding an equilibrium between short-term affordability and long-term value. We’d always advise drivers to consider not only their monthly premium, but also the financial impact of potential claims; an excess that stretches beyond your financial reach can render a policy ineffectual at the critical juncture of a claim. For this reason, you need to carefully evaluate your budget, driving habits, and historical claims frequency when determining the level of excess to undertake.
So, how does excess come into play when making a claim? In the event of an accident - after ensuring all parties’ safety and fulfilling any legal obligations you may have - your next step is to contact your insurer to initiate a claim. It’s at this stage that the excess becomes relevant, as you’ll need to provide the excess payment as part of the claims process. The method of payment and the timeline for the excess contribution will be stipulated by the insurer, so it’s essential for you to know these details when taking out their policy.
So, what factors can affect the compulsory excess that drivers are obliged to pay? Here are several factors that insurance companies consider when assessing risk:
Age and driving experience are among the primary factors insurers evaluate. Younger, less experienced drivers are statistically more likely to be involved in accidents, leading insurers to impose a higher compulsory excess on these groups to offset the risk. Conversely, older, more experienced drivers often benefit from lower excess amounts due to their proven track records on the road.
The type and value of the vehicle insured also dictate the level of excess applied. High-value cars or those with a high performance rating generally carry a greater risk of theft or expensive repairs, resulting in a higher excess. Insurers will typically assess the potential costs associated with repairing or replacing a particular vehicle model and adjust the excess accordingly.
Where you live and park your car can significantly impact the excess you have to pay: urban areas with high traffic congestion or regions with higher theft rates will typically see higher excess charges. In contrast, vehicles parked in secure, low-risk areas may benefit from a reduced excess, as these represent a decreased likelihood of claims.
An individual’s claims history is a critical component in determining excess. A history of multiple claims can lead to an increased compulsory excess, as insurers perceive this as an elevated risk. On the other hand, a clean claims record over several years may result in insurers offering a lower excess, rewarding the policyholder for their low-risk profile.
Each of these factors plays a significant role in the determination of excess amounts, which, in turn, affects the overall cost and terms of a car insurance policy.
Ultimately, excess is a key - albeit complex - aspect of car insurance, but understanding how excess works can make it easier for you to find a car insurance policy that works best for you. Don’t forget that your excess can affect your premiums, your decision-making process in the event of a claim, and your overall satisfaction with your insurance policy - so understanding and carefully selecting your excess is essential.
It all depends on your budget and how confident you are on the road. While putting forward voluntary excess will often end up lowering the cost of your monthly premium, it does mean you have to carry the risk of potentially making a substantial payout in the event of an accident. The key is finding a balance between affordable premium payments and an excess amount you can comfortably cover in the event of a claim.
The cost of compulsory excess on car insurance can vary, but insurers will typically ask for around £200-£300 if you’re an experienced driver. This figure can be higher for young or inexperienced drivers, or for those driving high-value or high-performance vehicles.
You may have to pay the excess even if an accident is not your fault because the insurance company often requires the excess payment upfront when a claim is made. If the other party is clearly at fault, your insurer may recover the excess from the at-fault party's insurer, and subsequently reimburse you.
The average voluntary excess on car insurance is usually around £250 in the UK, and is additional to the compulsory excess. Choosing a higher voluntary excess can lower your monthly premium, but it's essential to select an amount that is affordable for you in the case of a claim.
While policies with “no excess” claims can be alluring, they generally come with higher premiums - and in any case, most car insurers in the UK will demand a compulsory excess figure to protect themselves from minor or fraudulent claims. When it comes to voluntary excess, however, it all depends on your own individual financial circumstances and whether you’re confident enough to take on a higher risk sum.
A higher excess might suit those with a lower risk of claiming - for example, experienced drivers with a zero-claim history - and those who prefer lower regular premiums. On the other hand, a lower excess is ideal for newer drivers, as well as those willing to pay higher premiums for less out-of-pocket expense in the event of a claim.
A £1000 excess is not inherently bad, but it is on the higher side, and while it may mean lower premium payments, it also means that you’ll need to cover the first £1000 of any claim you make. It’s vitally important to consider whether this is an amount you can afford to pay if you need to make a claim - even in an accident that may not be your fault.
Compulsory excess can be high due to several factors, such as your age, driving history, type of car insured, and previous claims. Insurers may set a higher compulsory excess if they consider you a higher risk to offset potential claim costs, but these costs may come down as you develop a good track record and become a more experienced driver.
If you choose not to claim on your insurance after an incident, then you do not have to pay the excess. The excess is only payable when you initiate a claim process, after which the insurer agrees to cover the cost of the claim beyond the excess amount.
If the cost of repairs is less than the excess, it's generally not advisable to make a claim since you'll be paying for all the repairs out of pocket anyway. In this case, policyholders often choose to cover the full cost themselves to avoid any potential increase in premiums due to a claim.
