How does insurance excess work?

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Many policyholders often struggle to understand what an insurance excess is and why they are obliged to have an excess on their insurance policy.

What is an insurance excess?

An excess is the first amount you are liable to pay in the event of a loss. The excess is the uninsured portion of your loss, so when you submit a claim you’ll have to pay an excess.

In the event of a car insurance claim, you will only need to pay the excess if you are at fault for the accident and your insurer is paying for the repairs to your vehicle.

There are two types of insurance excess:

  1. Voluntary excess
  2. Compulsory excess

Your insurance excess will be specified on your policy documents.

What is a compulsory excess?

A compulsory excess is the amount set by your insurance provider when you take out your policy. You cannot choose this figure and you must pay this amount in the event that you make a claim on your policy.

What is a voluntary excess?

A voluntary excess is the optional amount specified in your policy that you are liable to pay in the event of a claim.

You will choose the amount of voluntary excess when you take out your policy.

How much insurance excess do you need to pay?

The total excess you are liable to pay in the event of a claim can be calculated by adding the compulsory excess and the voluntary excess together.

If your compulsory excess is set at £200 and your voluntary excess is £150, the total excess you will need to pay if you make a claim is £350.

The compulsory excess and voluntary excess are often combined into one figure when you receive an insurance quote, so make sure you check the specific details of your policy.

Will my insurance be cheaper if I increase my voluntary excess?

It is often worth increasing the voluntary excess on your policy if you can afford to do so, as it may reduce the cost of your overall premium.

Do bear in mind that should you need to make a claim, you could end up paying more in excess if your voluntary excess is higher.

What happens if I can’t pay my excess?

If you make a claim on your policy and you can’t afford to pay the excess, your insurer may:

  1. Refuse your claim
  2. Deduct the cost of the excess from any payment owing to you – for example if the damage to your vehicle amounted to £1,500 and you could not pay your £350 excess, your insurer would only cover £1,150 of damage. You would then be liable to pay the additional costs to the garage undertaking the repairs  

It’s important to ensure you can afford to pay the whole excess should you need to do so before you commit to the figure on your policy.

Can I insure against my excess?

A specialist excess insurance policy protects you in the event of a claim. While you will still need to pay the excess in the first instance, you will then be able to claim back the costs from the policy.

To decide if this cover is worthwhile for you, calculate how much the premium will cost you, versus the saving you could benefit from by increasing your voluntary excess.