What is a compulsory excess and a voluntary excess?
When you take out car insurance, your policy will have what is called an excess, displayed as a sum of money. If you make a claim, you will be required to pay the excess as a contribution towards the full cost of the claim.
In the majority of instances, you don’t physically pay the excess as a separate amount - rather, the sum is deducted from the amount the insurance company pays you. This is why you may see the excess described as the ‘deductible’.
Insurers impose an excess as a way to eliminate small claims, which would clog-up their administrative systems.
It is usually split into two parts:
1. Compulsory (or mandatory) excess: this is non-negotiable and is set by your insurer.
2. Voluntary excess: you choose the level of the voluntary excess, which is added to the compulsory excess. At MoneySuperMarket, we pre-select a voluntary excess of £250, but on the results page where your quotes are displayed you can change this to an amount between £0 and £1,000 to see the effect it has on the premium.
Choosing a higher voluntary excess to add to the compulsory 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 downside, this means that you'll be the one coughing up the extra cost if you have to claim, so keep the voluntary excess realistic.
For example, if you have a repair bill of £1,000 and an excess of £400, you will only receive £600, leaving a shortfall for you to plug from your own resources.
What is excess insurance?
Excess insurance 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 excess insurance policy will pay out – it typically lies anywhere between £250 and £1,000. So if, for example, your total excess (compulsory plus voluntary) is £500, 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.
Your excess insurance will pay out once you have provided evidence that you have made a successful claim on your car insurance.
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.
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.
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, your excess insurance provider may not pay out.