Excess insurance

No one enjoys forking out hundreds of pounds for car insurance each year, but while it can feel like you're pouring money down the drain, it could prove invaluable should you later need to make a claim due to an accident or if your vehicle is stolen.

But there are two problems with claiming on your car insurance. First, it can push up the cost of your cover in the future. And secondly, it can be expensive. This is because, when you make a claim, you will have to cough up for part of it yourself through what is known as the policy excess.

Paying the excess is often costly, so to help ease the pain it could be worth taking out something called 'excess insurance'. In a nutshell, this is an extra level of insurance protection which will cover the cost of your excess if you make a claim.

As with all types of insurance, it's essential you shop around for the best deal on your excess insurance.

What is an excess?

An excess is a sum of money your insurance company requires you to pay towards the cost of making a claim.

The excess is usually split into two parts - the compulsory excess, which is non-negotiable and depends on your age, the type of car you have and the type of claim - and the voluntary excess, which you can set yourself when you apply for your cover.

Choosing a higher voluntary excess will help to bring down the cost of your car insurance premiums because the insurer won't have to pay out so much in the event of a claim. But, on the flipside, this means that you'll be the one coughing up the extra cost if you have to claim.

What is excess insurance?

Excess insurance works alongside your normal car insurance policy. It will cover the cost of your excess if you have to make a claim, up to a pre-agreed limit.

You can choose the upper limit the policy will pay out - it typically lies anywhere between £250 and £750. So if, for example, your total excess (compulsory plus voluntary) is £300, you can take out excess insurance up to this level.

Of course, the higher the amount of excess you want to cover, the higher your premiums will be.

Should you need to make a claim on your car insurance, you will pay your excess as normal but then claim it back through your excess car insurance provider. The downside is you will end up having to make two claims, rather than one. But, once you have successfully made your claims, the savings could be well worth the extra effort.

Should I take out excess insurance?

With money tight for many of us, opting for a higher excess on your car insurance is an easy way to reduce the cost of your premiums. But boosting your excess could mean you'll be in for a nasty shock if you later have to claim on your insurance.

If you are worried you would not be able to afford to pay your excess if you made a claim, excess insurance can be very handy. But remember you will still have to pay for your excess initially and then claim it back from your excess insurance provider.

And don't forget you will have to pay for excess insurance on top of your main car insurance, which will add to the overall expense and eat into any savings you made by choosing a higher voluntary excess.

What are the different types of excess insurance?

There are two types of excess car insurance - single and lifestyle. As the name suggests, the single policy type covers the excess on one insurance policy only.

In comparison, lifestyle excess insurance will cover excesses on a number of different policies - and not necessarily two car insurance policies. It could, for example, cover the excesses on your home, travel, medical and pet insurance.

However, you will still be limited to the excess insurance claims cap with the lifestyle option. So if, for example, your annual policy covers up to £500 of excess, and you make a claim on both your home and car insurance in the same year, your insurer won't pay out more than the £500 cap.

Is there anything I should be aware of?

Always read the small print of your policy to ensure you don't get caught out. Check exactly what you will be covered for - for example, if you have an accident in another country, will your excess insurance provider still pay out if you make a claim? Some insurers also don't accept claims made in the first 30 days so check with yours to find out.

If it's your name on the excess insurance policy, be aware that many providers will only offer cover for insurance policies also held in your name. This means, if, for example, your home insurance policy is held in your partner's name and you make a claim, your excess insurance provider may not pay out.

†82% of shoppers obtained a quote in 5 minutes or less. Source eDigitalResearch December 2012.