All insurance policies, whether it be home, car, travel, life or pet insurance, will come with an excess charge written into the contract. This is standard procedure and is how insurance companies are able to stay in business, but the type of excess charge you pay and the amount of excess you are required to pay will differ from policy to policy.
What is Insurance Excess?
The excess is the amount of money your insurance company will ask you to pay if and when you need to make a claim. For example, if you accidentally reversed your car into a lamp post and you wanted to claim on your insurance to help pay for the damage, as long as your claim was accepted, you would need to pay the agreed excess amount first and the insurance company would pay the outstanding amount.
It is really important to look at what the excess is set at when you first take out a policy, because it can vary a lot between insurers and will also depend a great deal on your own personal situation. Failure to pay close attention to the policy excess at the time could result in a nasty and rather costly surprise at the point of making a claim. As a general rule, the higher the excess, the higher the premiums so just remember to factor this in when doing your research and working out what you can afford to pay each month.
Are there different types of Excess?
There are two main types of policy excess you can choose from, compulsory and voluntary. Let’s take a look at them both now, so that you can decide which would be the best option for you.
Compulsory excess is, as the name would suggest, compulsory.
What this means is that whatever amount the compulsory excess is set at, you have to pay this amount no matter what and it will be applied to every single claim you make. In general, compulsory excess is the cheaper option, which means annual premiums should be lower, although if you add extras for example, accidental damage cover, the amount will increase. The compulsory excess can be affected by things like, age, medical conditions, experience, type of car etc. depending on the type of insurance you are taking out, which is why it is so crucial to read through the policy documents as soon as you get them.
If you want to have a bit more control and have some added security in your insurance policy you may wish to include a voluntary excess. Voluntary excess can be taken out on top of the compulsory excess and basically allows you to choose the amount that the excess is set at. For example, if the compulsory excess amount is ?100 and you decide that actually this doesn’t sound high enough, you can add on a voluntary excess for an amount of your choosing. Although it will mean that the overall excess you have to pay out in the event of a claim will be higher, it will also mean that you will be covered for a lot more eventualities and your premiums are likely to be reduced. Only you can make the decision as to whether taking out voluntary excess is necessary. It’s a tricky one, because if you decide it’s worth taking the risk of having a higher voluntary excess in the hope that you may not need to make a claim, you may come unstuck if you do need to make one. One other drawback to voluntary excess is that realistically it is only ever worth you making a claim if it is for something that is pretty serious. It doesn’t make sense to claim on your insurance for, let’s say, a damaged or stolen laptop if the claim is ?80 but the excess is ?100. For the occasional accident this clearly is not going to make much of an impact on your finances, but combine a few small accidents together and suddenly the amount you’re having to fork out yourself to pay for repairs or replacements is going to soon stack up and the voluntary excess is going to look pretty useless. Some insurers may not allow you to take out voluntary excess, so it is always worth checking with them beforehand. Voluntary excess is viewed by some people as a bit of a gamble, so you need to decide whether you are willing to take that risk.
How do I know which is the right choice for me?
It is advisable to start your initial research into which insurance policy is best for you by going onto one of the online comparison sites. MoneySuperMarket.com allows you to input your requirements, it will then search their database for the most suitable deals and best of all it will show you a list of quotes based on policies with compulsory excess and those with voluntary excess. You may also wish to speak to an independent financial adviser who will be able to assist you and point you in the right direction.
You should always shop around when getting quotes for insurance to make sure that you not only get the best deals, but also that you get the right policy. Remember that just because a policy is cheap, in the long term it doesn’t mean it’s necessarily the best deal and likewise the most expensive policy may not be the most suitable and may even be providing you with too much cover; unnecessary cover for which you will charged accordingly.
Can I make savings elsewhere?
If you are worried about the amount your excess could cost you, but you still want a higher degree of cover that a voluntary excess would give you, there are other things you can do to make savings on your policy elsewhere.
- Do you need to claim? – It is not always necessary and certainly not always advisable or beneficial for you to make a claim on your insurance. In some instances, if you can afford to pay for damage, medical treatment, repairs, replacements etc. yourself, then this may be the better option and one which will not affect your premiums.
- Claim wisely – Some claims will have a greater level of excess than others, so choosing when and what to claim for is incredibly important. For example, the excess on home insurance will be higher for things like, subsidence, accidental damage, water and flood damage.
- Excess insurance – It may seem crazy, but you can actually take out insurance on your insurance! Yes, that’s right, if you’re worried about how you could afford to pay the excess on your insurance, then it may be a good idea to take out excess insurance. It would obviously entail a higher cost initially, however it may save you more money in the future.
For more advice and ways to save money on your insurance see our articles: