How does your policy ‘excess’ work?

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Car insurance premiums can be a real pain in the wallet – especially for young drivers – so most of us will be prepared to do whatever we can to keep costs down.

Of course, there’s all the usual stuff we can do, such as making sure we never automatically accept the renewal quote from our insurance company and always comparing what other insurance companies have to offer.

But many of us don’t consider changing our excess, even though this can have a big impact on the cost of cover.

The excess is the bit of any insurance claim you have to pay yourself - it applies whether we’re talking about motor cover, home insurance or travel insurance.

There are two parts to the excess. There’s mandatory or compulsory part, which is a set amount you have no choice but to pay, and a voluntary part, the size of which you can decide.

So, your policy might have a mandatory excess of £150, but you could choose to add another £150 voluntary excess, which means in the event of a claim, you’ll have to fork out a total excess of £300.

When comparing quotes using MoneySupermarket.com’s car insurance channel, you can see both the compulsory excess and the voluntary excess.

Once you’ve picked the policy you want, and you go through to the relevant provider’s site, it is at this point you can amend the voluntary excess to the level you want it set at.

The higher the voluntary excess you choose to pay, the lower your premiums will be, as the insurer won’t have to pay as much in the event of a claim.

But a word of warning, if you’re planning on making your excess very high in order to keep premiums down, make sure you can still afford to make a claim.

Imagine how galling it would be to have an accident and know you have insurance in place, but you can’t stump up the cost of the excess, making it impossible to get your car back on the road.

Another problem with setting your voluntary excess very high is that it means you’ll only ever be able to make a claim for major incidents.

So, if you have a prang in your car and it will set you back £500 to fix, making a claim would be pointless because your excess is double the cost of repairs.

Now this might not be a problem if it happens once, but it could end up being really frustrating if you have a couple of incidents where it doesn’t make financial sense to claim.

Remember too, that some insurers won’t let you push the excess too high – or at least stop lowering the premium in response, so always check at what the maximum limit they will allow is (bearing in mind that, for the reasons outlined above, it won’t necessarily make sense to choose this).

When I checked, the typical limit seemed to be around £500, which seems a sensible amount - much more than this is likely to be unaffordable for most people.

And if you are a younger driver, don’t forget that there may be an additional excess that applies on top of your voluntary and compulsory excesses.

Some insurers whack on as much as another £400 excess if you’re under 21 and make a claim, or around £200 if you’re aged between 21 and 24.

Check whether this is the case before upping your voluntary excess, as the last thing you want is to be hit with any unexpected nasty financial surprises if you do need to claim.

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