The amount you agree to pay towards a car insurance claim is known as the excess. It’s a crucial part of your policy, and getting it wrong can be a costly mistake. Many drivers overlook the details, leading to unexpected bills when they need to make a claim. Understanding how compulsory and voluntary excess work together is key to making the right choice for your financial situation.
Your total excess is the sum of the compulsory excess, which your insurer sets, and the voluntary excess, which you choose. This combined figure is what you’ll pay towards any claim before your insurer steps in. For instance, if your compulsory excess is £200 and you opt for a voluntary excess of £300, your total excess stands at £500. This means for any claim, you are responsible for the first £500. If the repair cost is less than this total, your insurer will pay nothing. This is why setting your excess appropriately is so important. It’s not just about saving money on your premium; it’s about ensuring you can actually afford to pay your share if the unexpected happens.
Here’s what you actually need to know.
Understanding Car Insurance Excess
Car insurance excess is the amount of money you agree to pay towards any claim you make on your policy. Think of it as your contribution to the repair or replacement cost. Your insurer covers the rest, up to the policy limit. Every UK car insurance policy includes an excess; it’s not something you can opt out of. It is made up of two parts: compulsory excess and voluntary excess.
The compulsory excess is non-negotiable. However, you can often reduce your overall premium by choosing to add a voluntary excess. This is the additional amount you decide to pay on top of the compulsory figure. The more voluntary excess you choose, the lower your insurance premium tends to be. This is because you are taking on more of the financial risk yourself. For instance, if your compulsory excess is £200 and you choose a voluntary excess of £300, your total excess for any claim will be £500.
What I tend to notice is that many people focus solely on the premium reduction without fully considering the implications of their total excess. It’s a common pitfall that can lead to financial strain when a claim arises. My first move would be to calculate the total excess and then assess if that amount is genuinely affordable for me if I had to pay it out of pocket tomorrow.
It’s also worth noting that specific types of claims might have their own separate, often lower, excess. For example, windscreen replacement claims typically have a much smaller excess. In a scenario where a windscreen replacement costs £280 and your separate windscreen excess is £75, your insurer would pay £205.
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Why Your Excess Choice Has Big Consequences
The amount of excess you choose significantly impacts your car insurance costs and your financial exposure. A higher voluntary excess generally leads to lower annual premiums. This is because you are self-insuring for a larger portion of any potential claim. For example, increasing your voluntary excess from £200 to £500 could save you around £40 per year on your premium. However, if you make a claim, you will have to pay that £500 yourself.
Conversely, a lower voluntary excess means a higher premium but less out-of-pocket expense if you need to claim. The decision involves balancing these two factors. Consider a scenario where a repair costs £380. If your total excess is £400 (compulsory £200 + voluntary £200), your insurer pays nothing, and you’ve incurred the cost of the repair plus the loss of your no-claims discount for the year. In such a case, it’s better to pay the £380 yourself and keep your no-claims discount intact.
The Financial Conduct Authority (FCA) stresses the importance of consumers fully understanding their policy terms before purchasing. This includes the excess levels. For a new driver with limited savings, a recommended voluntary excess is £0–£100. For an experienced driver with some savings, £150–£250 is often suggested. Experienced drivers with substantial savings might opt for £300–£500, and those with low mileage and a clean record could consider £500–£1,000.
What I’d consider is the long-term impact. If increasing my voluntary excess by £300 saves me £40 a year, it would take 7.5 years to break even if I made just one claim. This calculation helps put the premium savings into perspective against the potential claim cost.
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Common Mistakes When Choosing Your Excess
Getting your voluntary excess wrong is one of the most expensive mistakes UK drivers can make. It often stems from a misunderstanding of how the total excess works or an overemphasis on reducing the initial premium.
Setting an Unaffordable Total Excess
The most significant error is setting your total excess at a level you simply cannot afford to pay if you need to make a claim. For example, if your total excess is £800, but you only have £200 in savings, you are underinsured for any claim that exceeds £200. In the event of a write-off, where your car is valued at £9,500 and your total excess is £700, the insurer would pay £8,800. However, if you cannot cover that £700 excess, you face a serious financial problem.
Ignoring the Impact on No-Claims Discount
Many drivers don’t fully appreciate the value of their no-claims discount (NCD). A claim, even a small one, typically removes 2–5 years of NCD. If you have accumulated several years of NCD, this discount could be worth £200–£400 off your premium each year. A claim that costs you £300 today could end up costing you £600 or more over the next two renewals due to the loss of NCD. It’s crucial to weigh the cost of a repair against the value of your NCD.
Focusing Only on Premium Reduction
Some drivers opt for a very high voluntary excess solely to achieve the lowest possible annual premium. While this can lead to immediate savings, it leaves them vulnerable if an accident occurs. If the estimated repair cost is close to or below your total excess, claiming makes no financial sense. For instance, a £380 repair with a £400 total excess means you pay the full amount and lose your NCD. This is a common mistake that can be avoided by carefully considering affordability.
What I’d do is run quotes with different voluntary excess levels and compare not just the premium, but also the total excess amount. I’d then check my savings to see if I could comfortably cover that total excess.
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| Driver Profile | Recommended Voluntary Excess | Notes |
|---|---|---|
| New Driver (Limited Savings) | £0–£100 | Prioritise low out-of-pocket costs. |
| Experienced Driver (Some Savings) | £150–£250 | Balance premium savings with claim affordability. |
| Experienced Driver (Good Savings) | £300–£500 | Can absorb higher claim costs for lower premiums. |
| Low Mileage, Clean Record | £500–£1,000 | Suitable for those with low claim likelihood and high savings. |
Making the Right Voluntary Excess Choice
Choosing the correct voluntary excess involves a careful assessment of your personal circumstances, risk tolerance, and financial situation. It’s about finding a sweet spot that balances premium costs with your ability to pay if you need to claim.
Assess Your Financial Resilience
The most critical step is to determine how much you can realistically afford to pay towards a claim. Before you even look at premiums, check your savings and emergency funds. If you have £500 readily available, a total excess of £500 might be manageable. However, if your savings are only £200, setting a total excess of £500 would be a mistake. In such cases, a lower voluntary excess, even if it means a slightly higher premium, is a safer bet. For those with very limited funds, aiming for a voluntary excess of £0–£100 is often the most sensible approach.
Consider Your Driving Profile and Risk
Your driving history and experience play a significant role in how likely you are to make a claim. If you are a young or new driver, you might face higher compulsory excesses and potentially higher premiums regardless of your voluntary excess. If you have a clean driving record, drive a reliable car, and have low annual mileage, your risk profile is lower. This might allow you to consider a higher voluntary excess, as the likelihood of needing to claim is reduced. For drivers with low mileage and a spotless record, a voluntary excess of £500–£1,000 could be appropriate, leading to substantial premium savings.
Evaluate Premium Savings Carefully
Don’t assume that a higher voluntary excess always translates into significant premium savings. Sometimes, the difference in premium for increasing your excess from £300 to £500 might be minimal. If the saving is only £10 or £20 per year, it might not be worth the increased risk of having to pay out more if you claim. Always compare quotes from different insurers and look at the actual monetary savings for each voluntary excess level you consider. If increasing your voluntary excess from £200 to £500 saves £40 per year, it takes 7.5 years to break even if you make one claim.
What I’d do is get a few quotes with different voluntary excess levels, say £250, £500, and £750, and see the exact premium difference. I’d then calculate how many years it would take to recoup that difference with a claim, based on my estimated NCD value.
If you’re considering a higher excess, it’s wise to ensure you have adequate funds. For those managing property finances, understanding insurance is key. Our guide on co-ownership housing insurance offers valuable advice.
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When considering your excess, remember that it applies to various claims, including accident damage, fire, theft, vandalism, and windscreen damage. However, it typically does not apply to third-party claims where the other driver is fully at fault and admits liability, or claims paid directly by the other party’s insurer. In non-fault accidents, while the other party’s insurer may be liable, your insurer often requires you to pay your excess upfront, which is then usually refunded once liability is settled, typically within 4–8 weeks.
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Frequently Asked Questions About Car Insurance Excess
What is the difference between compulsory and voluntary excess?▾
How much voluntary excess should I choose?▾
Does excess apply to all claims?▾
What happens if my repair cost is less than my excess?▾
Can I recover my excess in a non-fault accident?▾
Choosing the right voluntary excess is a balancing act. It’s about understanding your policy, your finances, and your risk. By carefully considering these factors, you can make an informed decision that protects both your wallet and your peace of mind on the road. For those managing property insurance, understanding automatic renewal is also key. Our guide on understanding automatic renewal can help.
Sources and Further Reading
Understanding Subsidence Risk and Property Insurance in the UK — This article explores how property insurance addresses risks like subsidence, which is a crucial aspect of home ownership and financial planning.
Car Insurance Excess Explained. Trust My Policy, 2023.
Financial Conduct Authority. Financial Conduct Authority, Accessed 2023.
