What is Voluntary Excess on Car Insurance?
November 9, 2023
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Car insurance can often seem like a maze of jargon and numbers, especially when it comes to understanding the various components of your policy. Among these terms, 'excess' frequently emerges, comprising both compulsory and voluntary elements.
So what is excess? In short, it’s a compulsory fixed sum that you pay your insurance company every time you make a claim. The higher your excess, the lower your monthly payments.
While compulsory excess is quite straightforward, voluntary excess remains a lesser-understood concept. In short, voluntary excess is a means of increasing the fixed sum that you’d pay when making a claim - in exchange for a lower monthly premium. But how does it work, and what’s the catch? Let’s take a closer look.
Before diving into the specifics of voluntary excess, it’s essential to grasp the overarching concept of car insurance excess. As mentioned briefly above, an excess is the amount of money you agree to pay towards a claim before your insurance company covers the rest.
For instance, if you have an excess of £300 and the damage to your car amounts to £1000, you'll contribute the first £300, with your insurer taking care of the £700 balance. It acts as a co-payment, ensuring both the policyholder and the insurance company share the responsibility of the claim.
While the compulsory excess is a fixed sum set by the insurance provider, based on factors like the age and experience of the driver, voluntary excess is where the policyholder has some sway. Voluntary excess is an additional amount that you can voluntarily choose to pay on top of the compulsory excess, should a claim arise. You can decide on this figure when taking out or renewing your policy.
Simply put, it's a financial commitment you make, signalling to the insurer that you're willing to shoulder a more significant portion of the claim's financial burden if the need arises.
So, you might be thinking - why introduce an extra payment on your end? The primary rationale behind voluntary excess is to offer policyholders a chance to potentially lower their premium costs: by agreeing to a higher voluntary excess, you're essentially telling your insurance provider that you're less likely to make minor claims, and that you're confident about your driving skills and car's safety. In return, insurers often reduce the premium, considering the reduced likelihood of minor claim payouts.
Imagine you have a compulsory excess of £200 and you opt for a voluntary excess of £100. If you then incur damages of £800 in an accident, you'll pay the first £300 (the total of both excesses), while your insurer will cover the remaining £500.
In scenarios where the damages are less than the combined excess – using the previous example, let's say £250 – it might not make financial sense to make a claim. You'd be paying the entire repair cost out-of-pocket, and your insurer wouldn't contribute anything.
Before setting a voluntary excess, evaluate your finances. While a higher voluntary excess might mean lower premiums, ensure you can afford it if a claim arises.
If you're a cautious driver, less prone to accidents, you might feel more comfortable with a higher voluntary excess, banking on your safety record.
If you drive a high-value car or use your vehicle frequently, there might be a higher risk of significant damages or frequent minor damages. Adjust your voluntary excess accordingly.
Reflect on your past claim history. If you've rarely filed claims, a higher voluntary excess could be more economical in the long run.
So, what are the benefits (and disadvantages) that come with opting for voluntary excess? Here are some typical pros and drawbacks:
While it's tempting to hike up your voluntary excess for the allure of lower premiums, it's crucial to tailor it to your individual circumstances:
Put simply, the relationship between voluntary excess and premiums is a seesaw balance. Typically, a higher voluntary excess will result in a lower premium, because the insurer perceives you as a lower risk for small claims.
On the other hand, a lower voluntary excess usually equates to a higher premium, as the insurance company assumes more of the risk. However, this reduction in premium isn't always proportional. Doubling your voluntary excess might not halve your premium, so it's wise to ask for various quotes to determine the optimal balance.
Over the duration of your policy, if you feel the need to adjust your voluntary excess, the best option is to simply contact your insurance provider; while some insurers might allow changes mid-policy, others may only permit modifications at renewal. It's also essential to read the fine print and be aware of any administration fees associated with making such changes.
Overall, a thorough understanding of voluntary excess can help you make the best, most informed decisions about your car insurance. While the allure of reduced premiums is undoubtedly attractive, it's incredibly important to strike a balance that safeguards both your financial well-being and your peace of mind. In tailoring your excess to reflect your unique circumstances and by collaborating with a trusted accident management company, you can ensure that you're both cost-effective and protected in the event of a claim.
