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Excess on car insurance

In most car insurance policies in the UK, policyholders have a choice about the level of excess they find acceptable, balanced with the level of premium they need to pay. So what are the pros and cons of accepting a higher or lower excess?
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What is car insurance excess?

In the UK, car insurance excess refers to the amount of money that you, as the policyholder, agree to pay towards the cost of a claim before your insurance company starts to cover the remaining expenses. The concept of excess is used to share the financial responsibility between the policyholder and the insurance company.

There are two types of excess in UK car insurance:

  • Compulsory excess: This is the amount set by the insurance company that you must pay towards any claim, regardless of the circumstances. This amount is typically non-negotiable and varies depending on factors such as your age, driving history, type of vehicle, and the terms of your insurance policy
  • Voluntary excess: In addition to the compulsory excess, policyholders have the option to choose a voluntary excess. This is an extra amount that you agree to pay on top of the compulsory excess. Choosing a higher voluntary excess can sometimes result in lower insurance premiums, as you're essentially agreeing to take on a greater portion of the risk in case of a claim.

For example, if you have a car insurance policy with a compulsory excess of £250 and a voluntary excess of £150, and you make a claim for £1,000 worth of damages, you would need to pay a total excess of £400 (compulsory + voluntary) before the insurance company covers the remaining £600.

It's important to consider your financial situation and driving habits when deciding on the level of voluntary excess to choose. Whilst a higher voluntary excess might lead to lower premiums, it also means you'll have to pay more out of pocket if you need to make a claim.

Different insurance providers might have variations in how they structure excesses, so it's crucial to carefully review your policy documents and understand the terms and conditions before purchasing car insurance. Make sure you're comfortable with the excess amounts and how they would affect your potential claims.

How can you reduce the excess amount?

In the UK, there are a few strategies you can consider to potentially reduce the excess on your car insurance policy:

  • Choose a higher premium: One of the most common ways to reduce your excess is by opting for a higher premium. By agreeing to pay a larger portion of the claim out of pocket (higher excess), you might be able to lower your annual insurance premium. However, make sure that the higher excess is something you can afford to pay in case of a claim
  • Shop around: Different insurance companies have varying excess structures and pricing. It's advisable to shop around and obtain quotes from multiple insurance providers. This will help you compare not only the premiums but also the excess amounts they offer. Sometimes, a different insurer might offer a more favourable combination of premium and excess
  • Consider a specialist policy: Depending on your driving habits or the type of vehicle you own, you might be eligible for specialist policies that have different excess arrangements. For instance, policies tailored for young or inexperienced drivers might offer different excess options
  • Safe driving bonus: Some insurance companies offer safe driving bonuses or programs. These programs reward policyholders for maintaining a safe driving record over a certain period. As a reward, they might reduce your excess or offer other benefits
  • Bundle policies: If you have multiple insurance needs, like home and car insurance, bundling them with the same insurer might lead to discounts and reduced excess amounts
  • Security measures: Increasing the security of your vehicle by adding immobilisers, alarms, or tracking devices could potentially reduce your excess, as it decreases the risk of theft or damage
  • Telematics policies: Some insurers offer telematics or "black box" policies where your driving behaviour is monitored using a device installed in your car. If you prove to be a safe driver, you might be rewarded with lower premiums and excesses
  • Negotiate with the insurer: In some cases, especially if you're a long-term customer or have a strong driving record, you might be able to negotiate with your insurer to reduce the excess.

Whilst reducing the excess can be financially beneficial, it's important to strike a balance between the excess amount and the premium you pay. A very low excess might lead to higher premiums, so assess your personal financial situation and driving habits before making a decision.

What’s the benefit of agreeing to a higher excess?

Opting for a higher car insurance excess can offer several potential benefits, although it's important to carefully consider whether these benefits align with your financial situation and risk tolerance. Here are some advantages of choosing a higher car insurance excess:

  • Lower premiums: One of the main advantages of selecting a higher excess is that it often leads to lower insurance premiums. Insurance companies see policyholders who are willing to pay a larger portion of the claim themselves as less likely to make smaller claims, which can result in reduced risk for the insurer and, consequently, lower premiums for you
  • Cost savings: If you're a safe driver with a good track record and rarely make claims, the cost savings from lower premiums over time might outweigh the potential increased out-of-pocket expense from a higher excess in case you do need to make a claim
  • Personalised coverage: Choosing a higher excess allows you to tailor your coverage to your personal situation. If you have the financial capacity to cover a larger portion of the claim, you might not need as much coverage from your insurer, resulting in a more customised policy
  • Encourages responsible driving: A higher excess might encourage you to drive more cautiously and take better care of your vehicle. Knowing that you'll be responsible for a larger portion of the claim can make you more mindful of avoiding accidents and taking preventive measures
  • Suitable for low-risk situations: If you primarily use your car in low-risk scenarios, such as short commutes or rural areas with less traffic, you might be less likely to encounter accidents. In such cases, a higher excess could make sense as the likelihood of needing to make a claim might be lower

And the drawbacks?:

  • Financial strain: Choosing a high excess means you need to be prepared to pay a significant amount out of pocket in case of a claim. If you're not financially prepared for this, it could cause a strain on your budget
  • Unpredictable accidents: Accidents can happen unexpectedly, even to safe drivers. If you're involved in a major accident and need to cover a substantial excess, it might be a financial problem
  • Balancing savings: While lower premiums are appealing, make sure the savings from reduced premiums outweigh the potential higher excess cost. It's important to find a balance that suits your financial situation and risk tolerance
  • Claims for smaller incidents: A higher excess might discourage you from making claims for smaller incidents that fall below the excess amount, meaning you'll have to cover these expenses entirely on your own.

How do I decide on the right level of voluntary excess for me?

The decision to opt for a higher car insurance excess should be based on a careful evaluation of your financial capacity, driving habits, and overall risk tolerance.

So how do you decide on the right balance? Here's a step-by-step guide to help you make an informed decision:

  • Assess your budget: Start by evaluating your financial situation. How much can you comfortably afford to pay out of pocket in case of a claim? Consider your monthly expenses, savings, and emergency fund. The voluntary excess should be an amount you can reasonably manage without causing financial strain.
  • Evaluate your driving habits: Reflect on your driving history and habits. Do you drive frequently or occasionally? Are you a cautious driver with a clean record, or have you had multiple accidents in the past? A safer driving history might allow you to consider a higher excess, as you're less likely to make frequent claims
  • Consider your vehicle's value: The value of your vehicle plays a significant role in your decision. If your car is relatively inexpensive or has depreciated significantly, a higher excess might be more reasonable, as the potential payout from an insurance claim might not be as substantial
  • Analyse potential savings: Request quotes from your insurance provider with different levels of voluntary excess. Compare the premium differences between various excess amounts. Calculate how much you would save on premiums by choosing a higher excess. Consider whether the savings are worth the increased out-of-pocket expense in the event of a claim
  • Evaluate your risk tolerance: How comfortable are you with assuming a greater portion of the financial risk in exchange for lower premiums? If you're risk-averse and prefer more predictable costs, a lower excess might be preferable. On the other hand, if you're confident in your driving skills and can manage a higher out-of-pocket payment, a higher excess might be suitable
  • Anticipate types of claims: Consider the types of claims you're likely to make. Are you more concerned about minor incidents or major accidents? If you're more worried about significant accidents, a higher excess might be acceptable since these incidents are less frequent and more likely to exceed even a lower excess
  • Balance between premium and excess: Find a balance that works for you. You want to avoid being over-insured (paying high premiums for coverage you might not need) while also ensuring that your voluntary excess is manageable in case you need to make a claim
  • Consult with professionals: If you're unsure about the right level of voluntary excess, consider seeking advice from insurance professionals or financial advisors. They can help you analyse your situation and make a more informed decision.

The right level of voluntary excess is a personal decision that depends on your unique circumstances and to strike a balance that fits with your financial capacity, driving habits, and comfort level.

How can I save money on insurance?

At Rightly, we’ve developed a better way to renew your insurance premiums, not just on cars but on any insurance.

Rightly Save is our new service that automatically finds all your insurance policies and presents them to you in a single place, complete with renewal dates and the type of policy. Then we’ll set up automatic reminders so you get plenty of notice of all your insurance renewals, whether for car, home, travel, pet or any others you may have forgotten about - at just the right time to find the best deal. That way you’ll have a chance to find a better deal before your existing insurer rolls you into a new year and a new price, which you may not find time to look at until it’s already done.

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