When you take out car insurance, you’ll see a figure for ‘excess’. This is the amount you agree to pay towards any claim you make. Your insurer then covers the rest, up to your policy’s limit. For example, if your car needs repairs costing £1,200 and your excess is £500, your insurer will pay £700. But if the repair bill is only £400, and your excess is £500, your insurer pays nothing.
Many people look to reduce their car insurance costs by increasing their voluntary excess. The idea is that a higher excess means a lower premium. But is this always the best approach? It’s a common point of confusion, with only 49% of UK drivers fully understanding what voluntary and compulsory excess mean. This lack of understanding can lead to costly mistakes. Here’s what you actually need to know.
Understanding Your Car Insurance Excess
Car insurance policies have two types of excess: compulsory and voluntary. The compulsory excess is fixed by your insurer and cannot be changed. It’s a standard part of their underwriting process. The voluntary excess, however, is the amount you agree to pay yourself. You have control over this figure. By choosing a higher voluntary excess, you are telling the insurer that you are willing to take on more of the initial risk.
This willingness to pay more upfront typically results in a lower annual premium for your car insurance. It’s a trade-off: you pay less each year for the policy, but you commit to paying a larger sum if you ever need to make a claim. For instance, if your compulsory excess is £200 and you set your voluntary excess at £150, your total excess would be £350. If you make a claim, you must pay this £350 before your insurer contributes anything.
If I were in this situation, I’d want to calculate the potential cost of losing my no-claims discount versus the annual savings from a higher voluntary excess. This helps me see the real financial picture beyond just the immediate premium reduction.
Why Setting Your Excess Matters
The amount of excess you choose can significantly impact your financial situation, especially when a claim occurs. If your car sustains damage that costs less to repair than your total excess, making a claim is financially illogical. For example, if your total excess is £500 and the repair bill is £400, you would pay the full £400 yourself, and your insurer would pay nothing. You would have also used up a claim, potentially impacting your future premiums.
This is where a common misunderstanding arises. People often focus solely on the immediate saving on their annual premium. They might increase their voluntary excess to, say, £750 to get a cheaper policy. However, they may not consider what happens if they have a minor incident. A small bump that would have cost £500 to fix now means you pay the entire £500 yourself, with no help from your insurer. This is why setting your voluntary excess too high can effectively make claiming on your car insurance pointless for smaller repairs.
Beyond the immediate repair cost, there’s the long-term effect on your no-claims discount. A claim typically removes 2–5 years of no-claims discount. This discount is a major factor in reducing your premium. Losing it can lead to a significant increase in your insurance costs over the next few renewals. In some cases, a claim that saves you £300 today might end up cost you £600 over the next two renewals due to the loss of your discount.
It’s crucial to balance the immediate premium saving with the potential long-term costs and the practicality of making a claim. If I were in this situation, I’d want to use an online calculator to estimate how much my premium would increase if I lost my no-claims discount. This helps me decide if the annual savings from a higher excess are truly worth the risk.
Common Mistakes When Setting Your Excess
Choosing an Excess That’s Too High
The most common pitfall is setting your voluntary excess so high that it makes claiming impractical for most scenarios. If your excess is £700, and you have a minor scrape that costs £500 to fix, you’ll pay the full £500 yourself. You’ve gained nothing from your insurance for that incident and have still used up a claim. This is a critical error that negates the purpose of having insurance for smaller damages.
Ignoring the Impact on No-Claims Discount
Many drivers focus only on the immediate reduction in their annual premium when increasing their voluntary excess. They fail to consider the substantial increase in their premium that will likely occur after making a claim, due to the loss of their no-claims discount. This can turn a short-term saving into a long-term financial burden. Understanding how your no-claims bonus is protected is vital.
Not Considering Compulsory Excess
Some drivers might forget that their total excess is the sum of both compulsory and voluntary amounts. If they set a voluntary excess of £200, thinking that’s their maximum contribution, they might be surprised to find their total excess is actually £400 (if the compulsory excess is also £200). Always add the two figures together to understand your true out-of-pocket expense.
If I were in this situation, I’d want to check the specific compulsory excess amount on my policy documents. This ensures I’m not making assumptions about my total financial commitment.
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How to Set Your Car Insurance Excess Wisely
Assess Your Financial Resilience
The first step is to honestly evaluate how much you could afford to pay out of pocket if you needed to make a claim. Can you comfortably cover £300? £500? £750? Your decision on voluntary excess should align with your personal financial situation. If you have significant savings, you might be able to set a higher voluntary excess to lower your premium. If your budget is tight, a lower voluntary excess might be more prudent, even if it means a slightly higher annual premium.
Calculate Potential Long-Term Costs
It’s worth doing some research to see how much your premium might increase if you were to make a claim and lose your no-claims discount. Many comparison sites allow you to simulate this. Understanding this potential future cost is key to making an informed decision. A higher voluntary excess might save you £50 a year, but if a claim costs you an extra £200 in premiums over the next two years, the saving is wiped out.
If I were in this situation, I’d use a car insurance comparison tool to get quotes with different voluntary excess levels. This gives me a clear picture of the immediate savings versus the potential future costs.
Consider Excess Insurance
There’s a product called motor excess insurance that can reimburse the amount you pay toward your compulsory or voluntary excess. This is an additional policy you can buy. It means that even if you have to pay your excess to your car insurer, you can then claim that amount back from your excess insurance provider. This can be a good option if you want to benefit from a lower premium by setting a higher voluntary excess, but still want protection against paying that excess yourself.
However, it’s important to check the terms and conditions of any excess insurance policy. For example, Easy GAP offers the cheapest excess policy, but your car must be less than 15 years old and have covered less than 15,000 miles.
| Driver Age Group | Understood Voluntary Excess | Understood Compulsory Excess |
|---|---|---|
| 18–24 | 23% | 17% |
| 65+ | 74% | 73% |
Frequently Asked Questions About Car Insurance Excess
What is car insurance excess? ▾
Can I change my compulsory excess? ▾
How does voluntary excess affect my premium? ▾
When should I not make a claim? ▾
What is motor excess insurance? ▾
Setting your car insurance excess involves a careful balance. While a higher voluntary excess can reduce your annual premium, it’s essential to ensure you can afford to pay it if you need to make a claim. Always consider the potential long-term impact on your no-claims discount. If this was useful, you might also want to read Is Your No-Claims Bonus Truly Protected? Understanding UK Car Insurance Jargon.
Sources and Further Reading
Car Insurance Excess Explained — Trust My Policy, 2023.
Drivers confused by car insurance excess: how to set the right amount. Which?, 2023.
Excess Cover Explained. ALA Connect, 2023.
Is Your No-Claims Bonus Truly Protected? Understanding UK Car Insurance Jargon — BritWealth. Understanding your no-claims bonus is crucial for managing your car insurance costs effectively.
