How to perfect your motor excess balancing act

Keeping down the cost of your annual car insurance premium by agreeing to a pay a bigger amount towards any claim – something known as your voluntary excess – is very understandable. After all, in the past two years alone, car insurance premiums have risen by 8.8%, according to our figures at MoneySupermarket.

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But opting for a very high voluntary excess could prove a false economy – especially if you have one or more small accidents in the course of a year.

If repair costs are low, you could even end up paying the whole amount of a claim, and therefore getting no monetary advantage from your insurance policy at all. In fact it is likely to wipe out any savings you made by increasing your excess in the first place – especially as the impact on your premiums is sometimes minimal.

For example, our research at MoneySupermarket reveals that increasing your excess from £0 to £500 only reduces the price of a typical annual policy by about £190.

Opting to pay £400 rather than £200 towards any claim, meanwhile, cuts the cost by just £25.

Peter Harrison, car insurance expert at MoneySupermarket, said: "Motorists looking to cut costs may assume that altering the voluntary excess level to a higher amount will result in a lower premium price. But beware: This isn't always a cost effective option.”

How do car insurance excesses work?

Motor insurers insist you pay a certain amount towards any claims you make during your policy term. This amount is known as your compulsory excess.

However, when searching for quotes, you can also choose to set your voluntary excess – payable over and above the compulsory excess – at anything between £0 and several hundred pounds.

According to Peter Harrison, the combined excesses could therefore easily reach several hundred pounds.

How high should I set my voluntary excess?

It's crucial to set the total excess (including the compulsory excess) at a level that you can afford to pay, and that will not exceed the value of most claims.

Imagine, for example, that you have a total excess of £100. If you made a claim for £500, you would therefore pay the first £100, while your insurer would cover the remaining £400.

With a total excess of £500, however, you would pay the entire amount, making a claim pointless.

If you are happy to cover the cost of damage to your vehicle, for example, of up to £500 in order to protect your no claims discount, then this is fine.

If this isn’t the case, you should opt for a lower total excess to ensure that your insurance covers you when you need it. The easiest way to find out what impact raising your voluntary excess will have on your car insurance costs is to play around with the level using the MoneySupermarket search engine, and see how the resulting annual quotes differ.

How else can I cut my car insurance costs?

Shopping around to see if you can get a better deal when your policy comes up for renewal is the best way to pay less for car insurance.

Insurers do not reward loyalty, and you may find that you can make savings of £300 a year by switching to a different company – especially as many companies will take any no claims discount you have built up with your current insurer into account.

Other cost-cutting options include taking out a pay-as-you-go policy that involves a 'black box' being fitted to your car. Also known as telematics insurance, this technology tracks how many miles you drive, whether you drive at busy times, at night, or on dangerous roads and the theory is that the safer a driver you are, the less you will pay for your insurance.

Fitting an approved alarm, immobiliser or tracking device to make it less likely that thieves will try to steal your car, meanwhile, can also slash your premiums, as can choosing a make and model of car that falls into a low-risk insurance group.

Insurers rate cars into one of 50 groups, depending on a number of factors including engine size.

And, as you can find out which group a particular vehicle falls into by visiting, it could prove prudent to opt for a car in one of the lower-risk groups. Read more on this with Kevin Pratt’s article, Getting to grips with car insurance groups.

Finally, while making monthly payments may seem attractive when money is tight, it is a better idea to pay upfront for the whole year as monthly payments generally attract interest charges of around 10%.

Car insurance claim statistics

The cost of the average car insurance claim made by a male driver aged between 17 and 19 is £4,473, according to the Association of British Insurers (ABI). And for female drivers of the same age, a typical claim costs £2,734.

While the average personal injury claim costs £2,430, the legal fees related to claims of this kind add a further £2,100 to the bill. The ABI claims that personal injury claim legal costs alone cost UK motorists £2.7million every day and add £40 to a typical driver’s annual insurance premiums.

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.

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