What Is Car Insurance Excess And What Does It Mean?
Posted on 02/01/18
The insurance industry uses quite a lot of technical jargon terms that can be hard to get your head around, particularly if you're trying to get insurance for the first time.
One of the most common queries people have is what an insurance excess is, and there are some pretty common misconceptions about excesses. We explain all below:
What Is An Insurance Excess?
The excess is the amount that you pay towards a claim on your insurance. If you're involved in a crash and you have to make a claim, you pay the excess and your insurance provider will pay the rest.
If you're involved in a crash that's found to be someone else's fault, their insurance will pay your damages and you usually won't be required to pay an excess.
So if you're involved in a crash that costs £1,000 worth of damage and your excess is £250, your insurance provider will pay £750 and you pay your £250.
Your excess is one of the most important things to understand before you take out insurance, because getting it wrong can result in very expensive consequences.
Why Do I Need To Pay An Insurance Excess?
Insurance is an expensive business - insurance providers pay out an estimated £33 million every single day for crash repairs and injury claims.
Paying an excess helps offset the costs of claims; the higher your excess the lower your insurance premium - the overall amount you pay for your insurance - will be.
However, it's extremely important to be wary of how much you can afford to pay for your excess. We'll talk more about that below.
What's The Difference Between Compulsory And Voluntary Excess?
The easiest way to explain the difference between a compulsory and voluntary excess is that compulsory is what you have to pay, while voluntary is what you volunteer to pay.
Compulsory excesses are set by your insurance provider and are non-negotiable, but you're free to choose your own voluntary excess.
As a general rule of thumb, the higher your voluntary excess the lower your insurance costs up-front. However, many people can unwittingly run into trouble as a result.
Why A Higher Excess Isn't Always Better
The problem is that while it might be tempting to increase your voluntary excess so that you have to pay less for your insurance, it can come back to seriously bite you in the behind.
Say you take out an insurance policy for your car that has a £350 compulsory excess, and you then decide to raise your voluntary excess to £500 to lower your up-front cost.
If you're involved in a crash and you have to claim on your insurance, that's £850 that will come straight out of your pocket.
Not only that, but most insurers will refuse to pay out for anything that costs less than what your excess does. This is to prevent people from making constant claims for small things like chipped paint or dinged doors.
In the eyes of an insurance provider, if you can afford to pay £850 for your insurance excess, you can afford to pay up to £850 for anything that goes wrong. Broken a headlight, dented a bumper, had somebody smash your wing mirror or steal your stereo? If it costs less than £850 to fix, your insurer likely won't touch it.
Choose An Excess That You Can Afford
In other words, you should only set your excess as high as what you can feasibly afford. If you can afford £850, that's fine, but if not you should seriously consider lowering your voluntary excess.
It might make your insurance costs a little more expensive in the short-term, but it's much better than ending up in a bad spot and then realising you have to pay loads of money just to have your car fixed.
Can You Avoid Paying Your Insurance Excess?
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Nope, sorry! What you can do though is take out something called Excess Protection, which is kinda like an insurance policy for your insurance policy.
Although if you make a claim you'll still have to pay your excess up-front, if you have an Excess Protection policy your insurer will pay you the money back. It usually doesn't cost that much and is a worthwhile consideration if you're worried about being left out of pocket.
You can find out more about Excess Protection here, or why not check out our news page for more handy info!