Don’t be excessive with your excess

The ‘excess’ on your motor insurance policy is a key tool for keeping your premium down. In crude terms, the higher the excess, the lower your premium will be. But that doesn’t mean you should merrily plump for a big excess just to keep a lid on the premium you pay. If you have to make a claim, the insurance company will deduct your excess from the payout (that’s why you sometimes hear of an excess being called a ‘deductible’). Clearly, the higher the excess, the bigger the inroads into what you will receive. Push the excess high enough and you won’t get anything for smaller claims. For example, set your excess at £400 and there’s no point claiming for anything below that amount.
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If fact, once you take any eligibility for no claims discount into account, there’s probably not much point claiming for anything below £700 or £800. So you have to ask yourself if you have sufficient funds available to carry this sort of cost yourself.

Excess all areas?

Insurers require an excess on all car insurance policies – this is usually called the ‘standard’ or ‘mandatory’ excess (you’ll also find it on other policies such as home and travel insurance). It’s there to deter small claims that are expensive to administer and which would clog-up the system. On top of this sits the voluntary excess – the bit you can adjust. Typically, a car insurance quote might be calculated on the basis of a £100 mandatory and a £100 voluntary excess, meaning £200 would be deducted from any claim paid out by the insurer. According to Sainsbury’s Bank, drivers (and homeowners) are increasing the voluntary excess without considering the implications, with many choosing not to make claims after an incident because they’ve nudged their excess too high to make it worthwhile. The bank reckons 7.4 million people have voluntarily increased the excess on a car or home insurance policy in the past three years to bring down the cost, with the average increase put at £327. The thick end of one million of these went on to suffer an accident or damage to their car or home that they could claim for, but 35% of them had raised their excess so much that they felt it wasn't worth claiming. Two-thirds of those involved in an incident therefore made a claim, despite their high excess – but they had to use savings, a credit card or money borrowed from a friend or relative to bridge the gap between the cost of repairs and the actual claims pay-out.

Balanced approach

Most insurers won’t recognize a voluntary excess beyond a certain limit – usually £500. That means, even if you set it at £750, say, the premium reduction achieved will only be the same as for £500. What’s the insurer logic there, you might ask. Their reasoning is that the excess is primarily designed to cover the costs of repairing or replacing your own car. It is not there to cover your liabilities to someone injured or killed in an accident where you are deemed ‘at fault’. As this element of cover is potentially the most substantial in your policy, the insurer must continue to charge a reasonable premium to account for it. So it can only trim the premium by so much. Insurers might also see a request for a high excess as a sign that someone can’t afford the premium they would normally charge. This makes them think the person must be particularly high risk – a young driver, perhaps – which makes them instinctively nervous about what they are taking on. When insurers are nervous, they like to console themselves with premium income, rather than a high excess.

Shop around

We always recommend that drivers shop around for cover using our online quote service– and as part of this process you can adjust the voluntary element of your excess to see what impact it has on your premium. You can then calculate what you could afford to pay if you had to claim and how much you’d like to save on premium spend.

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