Understanding car insurance excess can feel like navigating a maze. It’s the amount you pay towards a claim before your insurer steps in. Many drivers find this part of their policy confusing. A survey found that only 49% of drivers fully understood voluntary and compulsory excess. This lack of clarity can lead to unexpected costs when you need to make a claim.
This guide aims to demystify car insurance excess. We’ll break down what it is, how it works, and how to choose an amount that suits your financial situation. Knowing this can help you make informed decisions about your policy and avoid costly surprises.
What is Car Insurance Excess?
Car insurance excess is the amount of money you agree to pay towards any claim you make on your policy. Your insurer then covers the remaining cost. It’s made up of two parts: compulsory excess and voluntary excess. The total excess is the sum of these two amounts.
Insurers set compulsory excess based on factors like your age, driving experience, and the type of car you drive. For instance, younger drivers or those with less experience might face a higher compulsory excess. This is because they are statistically more likely to be involved in an accident. Similarly, if you drive a luxury or high-performance car, your insurer might apply an additional compulsory excess to account for the increased cost of repairs or replacement.
The voluntary excess is where you have more control. Generally, the higher the voluntary excess you agree to pay, the lower your car insurance premium will be. This is because you are taking on more financial risk yourself. If I were choosing my policy, I’d start by looking at what voluntary excess I could comfortably afford to pay in an emergency, as this often leads to immediate savings on the premium.
Why Excess Matters for Young and New Drivers
For younger drivers, the concept of excess can be particularly daunting. Their compulsory excess is often higher, sometimes ranging from £300 to £500 or even more. This can push the total excess amount well over £1,000 when combined with a voluntary contribution. This higher compulsory excess reflects the increased risk insurers perceive with less experienced drivers.
This means that even for a minor incident, the cost to the driver could be substantial. If the repair cost is less than or close to the total excess, making a claim is often pointless financially. For example, if your total excess is £800 and the repair bill is £700, claiming would mean you pay the entire repair cost yourself. It’s crucial for young drivers to understand this dynamic to avoid making claims that don’t benefit them.
Older drivers, on the other hand, tend to have a better grasp of insurance terms. A survey showed that 74% of drivers over 65 understood voluntary excess, compared to only 23% of those aged 18 to 24. This difference in understanding highlights a potential gap in financial literacy, particularly for younger generations navigating their first car insurance policies.
It’s also important to remember that excess is applied per claim. This means if you have two separate incidents in the same year, you would typically need to pay the full excess twice. This is a critical point that many drivers overlook, potentially leading to unexpected financial strain if multiple claims are made.
Common Misunderstandings About Car Insurance Excess
Assuming Excess is a Yearly Fee
One of the most common misunderstandings is that excess is a one-off payment per year. In reality, you only pay excess when your insurer pays out on a claim. If you have two separate incidents that require a claim in the same policy year, you will likely have to pay the excess amount for each incident. This can significantly increase the cost of making multiple claims.
For example, if your total excess is £400 and you have a minor fender bender that costs £500 to repair, you pay £400 and the insurer pays £100. If a few months later you have another incident, say a cracked windscreen costing £200 to replace, you would pay another £400 excess, and the insurer would pay nothing. This is a crucial detail that can catch drivers out.
Ignoring the Total Cost of a Claim
Another mistake is not considering whether making a claim is actually worth it. If the cost of repairs is less than or close to your total excess, claiming is usually pointless. For instance, if your voluntary excess is £300 and your compulsory excess is £200, your total excess is £500. If your car needs a repair that costs £400, making a claim means you pay the entire £400 yourself, with no contribution from the insurer. In this scenario, it’s often better to pay for the repair out of pocket.
If I were in this situation, I’d always get a quote for the repair first. If the repair cost is significantly less than my total excess, I would pay for it myself and avoid making a claim to protect my no-claims discount and avoid any potential premium increases at renewal.
Believing All Claims Require Excess Payment
It’s also a common misconception that you always have to pay excess, regardless of who is at fault. This isn’t true. If the other driver is at fault for an accident and their insurer settles directly with you, you typically do not pay any excess. Your insurer may then seek to recover the costs, including your excess, from the at-fault driver’s insurer. This is why it’s important to gather as much information as possible at the scene of an accident, including the other driver’s details and insurance information.
| Driver Age Group | Understanding Voluntary Excess | Understanding Compulsory Excess |
|---|---|---|
| 18-24 | 23% | 17% |
| 65+ | 74% | 73% |
This table highlights a significant difference in understanding based on age. Younger drivers often struggle with the concepts, while older drivers show a much higher level of comprehension. This disparity underscores the need for clearer communication from insurers and potentially more accessible educational resources for younger motorists.
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Choosing Your Voluntary Excess Wisely
Setting the right voluntary excess is a balancing act. You want to reduce your premium, but you must also ensure you can afford to pay the excess if you need to make a claim. The key is to find an amount that is manageable for your personal finances.
Assess Your Financial Situation
Before you decide on a voluntary excess, take a close look at your savings and income. Can you realistically afford to pay the total excess amount at short notice? Some insurers allow you to pay your excess in instalments, but this is not always the case. It’s vital to set an excess that you can comfortably pay without causing financial hardship. If you can’t actually afford the total excess, it defeats the purpose of having insurance.
If I were in this situation, I’d look at my emergency fund. If I had enough saved to cover a £500 excess, I might consider setting my voluntary excess at £300, knowing the compulsory excess is £200. This offers a good balance between premium reduction and manageable out-of-pocket costs.
Consider Your Car’s Value and Repair Costs
The value of your car and the typical cost of its repairs should also influence your decision. If you drive a high-value car or one that is expensive to repair, you might consider a slightly higher voluntary excess. This is because the potential claim cost will be higher. However, always ensure the excess remains affordable for you.
For a car that is older and less valuable, a lower voluntary excess might be more appropriate. The repair costs are likely to be lower, and you might not need to contribute as much. It’s about matching the excess to the potential risk and your ability to pay.
Review Your Policy Annually
Your financial situation and your car can change over time. It’s a good practice to review your car insurance policy, including your excess amount, every year when it’s up for renewal. If your savings have increased, you might be able to afford a higher voluntary excess and save more on your premium. Conversely, if your financial circumstances have changed, you might need to lower your voluntary excess to ensure it remains affordable.
This annual review is also a good time to compare quotes from different insurers. You might find that other providers offer better rates for the same level of cover, or perhaps with a different excess structure. It’s always worth shopping around to ensure you’re getting the best deal.
By following these steps, you can make a more informed decision about your voluntary excess. This proactive approach can lead to lower premiums and greater peace of mind, knowing you’re prepared for potential claims.
For those looking to potentially reduce the likelihood of needing to claim in the first place, consider investing in a dash cam. A device like the Garmin Dash Cam Mini can record incidents, providing valuable evidence if an accident occurs, which might help in determining fault and potentially avoiding excess payments.
Frequently Asked Questions About Car Insurance Excess
What is the difference between voluntary and compulsory excess? ▾
Can I change my voluntary excess after taking out a policy? ▾
Do I pay excess if the other driver is at fault? ▾
How many times do I pay excess in a year? ▾
Is it always best to have a higher voluntary excess? ▾
Understanding your car insurance excess is a key part of managing your policy effectively. By knowing the difference between compulsory and voluntary excess and choosing an amount that fits your budget, you can save money on your premiums while remaining adequately protected.
If this was useful, you might also want to read Understanding Replacement Vehicle Coverage for Car Insurance.
Sources and Further Reading
Car Insurance Voluntary & Compulsory Excess — Confused.com, Accessed 2024.
Drivers confused by car insurance excess: how to set the right amount — Which?, Accessed 2024.
Car insurance excess explained — MyMoneyComparison, Accessed 2024.
Understanding Replacement Vehicle Coverage for Car Insurance — BritWealth, Explains what happens if your car is unusable after an accident.
Driving for Business: Is Your Car Insurance Covering You? UK Regulations Explained — BritWealth, Details how business use affects your car insurance policy.
