Everything You Need to Know About Insurance Excess
Insurance products are always full of confusing terms, and car insurance is no different. One term that confuses many motorists is that of insurance excesses. Even drivers who understand what an insurance excess is many not realize how it affects the price of their car insurance policy. This guide will help motorists in the UK understand what excesses are, and how they can manage them to ensure that their motor insurance policy is properly suited to them.
While the term excess may conjure many wild images, the reality is much less exciting. An excess is the amount of money that you must pay if you file a claim. Another way to think of it is as a discount rate for your car insurance company. For example, if an individual has a £100 excess, and files a claim worth £1000, the car insurance company will pay out £900 if the claim is approved.
It is important to note that some car insurance companies have different policies regarding claims where someone else was at fault. Some companies are willing to completely waive your excess in these circumstances, so it is important to fully understand the terms and conditions outlined in your insurance policy.
There are also different kinds of excesses. The most important distinction is between voluntary and compulsory excesses. A compulsory excess is mandated by your insurance company and policy, and likely cannot be avoided, whereas a voluntary excess is an amount the driver agrees to beforehand with the company.
There are many categories of driver that may find themselves subjected to high compulsory excesses, especially youths and other high-risk drivers. This is because the insurance company feels that the higher risk those drivers present warrant a higher fee for paying out a claim. The thinking is that this will encourage drivers to be more careful by limiting the amount of money they can recover from a claim. Additionally, as these excesses are frequently waived in claims where the policy holder is not determined to be at-fault.
Moreover, different types of cars may be subjected to different amounts of excess. Higher value and high performance cars will likely have a higher compulsory excess than cheaper and safer autos.
Given that excesses functionally reduce the money you can receive from a claim, why would anyone want to take on an additional voluntary excess?
The Benefits of Voluntary Excesses
Voluntary excesses can lower the cost of auto insurance. This is because the company will have to pay less to resolve a claim and so the risk the company takes on in insuring the driver is reduced. Insurance is a statics-based market, and so lowering the risk the insurance company faces results in lower charges for your premium.
There are many motorists who can benefit from increasing their voluntary excesses, but it is not a strategy that is right for everyone. Motorists who face high insurance costs because of other factors may benefit from the lower insurance rate from the higher voluntary excesses. This is especially true for youths, those with drink-driving convictions, a history of speeding, or other criminal records.
Additionally, if a motorist is confident that they are a safe driver they may wish to take on a greater voluntary excess, especially if their policy includes a provision that waives the excess in situations where the policy holder is found not to be at fault for the accident.
There are some downsides to taking a larger voluntary excess. One example is that it may not be worth it to file a claim for minor accidents, which leaves drivers holding a large repair bill. Additionally, if you are relying on full comp insurance to replace your car in the event of an accident because you do not have the financial ability to purchase a new car without support, then a large voluntary excess may prevent you from effectively replacing your car. This is an important consideration to take for many drivers, and motorists should carefully evaluate how much they need their car to perform their daily activities. Individuals who have access to public transport or other ways of getting to work may be better able to absorb the blow of large voluntary excesses.
Use this information to help find the best insurance policy for your situation. Play with the numbers and see what kinds of rates you qualify for at different excess levels.