Can you afford your excess?

Motor insurance premiums have risen by a staggering 15.3% in the 12 months to January 2012, according to research from the AA – so the nation’s drivers would be forgiven for seeking out any legitimate means possible of keeping costs down.

Small car on a road with a blue sky

Save money on your car insurance

Start a quote

One is to opt for a greater voluntary excess. This is your agreed contribution towards the cost of any claim which is in addition to any compulsory excess the insurer charges. The higher the voluntary excess you agree to, the lower your annual insurance premium will be.

But new research, which reveals that nearly a third of motorists can’t actually afford the excess they have agreed, may have thrown a spanner in the works.

Motor insurance giant AXA says that 29% of motorists wouldn’t have enough readily-available money in savings to cover their agreed excess if they had to make a claim on their car insurance. But with savings of more than 20% available, it’s not surprising that motorists are taking their chances and getting caught out.

So, is raising your excess in return for cheaper car insurance savvy or risky? Here’s a look at the savings on offer for those willing to take the risk and the dangers of out-pricing yourself.

How much can you save?

According to MoneySupermarket research, a 40-year-old male teacher from Surrey who drives 10,000 miles a year in a 2006 Ford Focus, keeps the car parked on a driveway and has a five-year No Claims Discount (NCD) can save up to 21% on his car insurance by increasing his voluntary excess.

For example, the policy would cost an annual £368.31 with £0 voluntary excess, £344.69 with £100 voluntary excess and £305.75 with £250 voluntary excess. The policy price plateaus at £292.80 once you are willing to pay an excess of £450 or more.

This means that even if our 40-year-old teacher from Surrey opted to pay the maximum voluntary excess of £1000, he’d be no better off.

Is your excess too high?

The AXA research, based on its own claims data and a poll of 2,000 people, found that the number of motorists unable to meet their excess obligations is on the up. Last year, that number rose by 61% compared to 2010.

Although a third of motorists wouldn’t have the cash to pay their excess, the same research found that 48% of those polled had available savings of £500 or less and 34% had £200 or less.

AXA says the average voluntary excess has risen by 10% in two years, clearly showing that people are opting for higher excess to lower the cost of their insurance – unsurprising given the soaring cost of insurance and fuel.

If you do have to make a claim and can’t afford the excess you agreed to, you may be forced to either borrow the money or pay with a credit card, but there are other ways to deal with the cost of making a claim if your excess is too high – as long as you are prepared.

How to pay your excess

If you’re the organised sort, you can stash away some money in savings to cover the excess, should you need it. If you’re going to do this, it’s best to go for an easy access savings account which doesn’t penalise you for withdrawals.

The Halifax Online Saver for example pays 2.80% for the first year, allows for unlimited withdrawals and can be opened with as little as £1. With a 2.70% bonus for the first 12 months, however, that rate drops to 1.10% thereafter.

If you’re not disciplined enough to be able to put money away, some car insurance providers offer ‘excess insurance’ which actually insures the excess you have agreed to. This means if you have to make a claim and fork out your excess, it will also pay out, up to an agreed limit.

However the cost of this bolt-on insurance could actually negate the savings you made by increasing the excess on your car insurance in the first place. In this case, you may as well just reduce your excess and pay more for your premium.

Other ways to lower car insurance costs

If you want to set your excess at a more affordable level but still find your car insurance premiums high, there are things you can do to cut costs.

Paying for your policy in full upfront rather than in monthly instalments can save you money. Some insurance companies charge an additional 10.75% if you choose to pay monthly as they’re effectively lending you the money for the policy and charging you interest on that loan. Paying upfront avoids this interest charge.

If you have a credit card with a long 0% interest period like the Marks & Spencer credit card which offers 0% on purchases for 15 months, you could pay for your annual policy in full on the card and then pay off the balance interest-free over the course of the year.

Driving carefully and building your NCD will also earn you a cheaper premium. Five years’ worth of NCD can lower your premiums by as much as 75%.

Securing your vehicle reduces the risk of it being stolen and should result in cheaper premiums, so you might consider installing insurer-approved security equipment like an immobiliser or steering wheel lock. Better still keep it in a locked garage overnight if possible.

However you attempt to lower the cost of your car insurance, remember that if you have to make a claim you’ll still be expected to pay the compulsory excess plus your voluntary excess, so don’t set it to an amount you couldn’t afford if it came down to it.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

Did you enjoy that? Why not share this article

Take control of your energy bills

Our handy tips and tools will help make sure you never overpay again

Popular guides