Should I increase my insurance excess?

What is an insurance excess?

An insurance excess is the amount you'll need to pay out towards the cost of a claim before your insurer makes a contribution.

When you take out an insurance policy, the insurer will ask you to pay towards any claim you make on your insurance policy.

This excess is divided into two parts: 

• Compulsory excess: this sum is set by your insurer and will often vary upon your age and your driving experience

• Voluntary excess: this is where you an additional excess on top of your compulsory one

Adding to your voluntary excess will increase the amount that you will need to pay when you make a claim, but it will mean you pay cheaper premiums.

For example, an older more experienced driver who takes out a higher voluntary excess when they take out car insurance but never makes a claim could save hundreds, possibly thousands of pounds.

Find out more about how an insurance excess works

How does a compulsory insurance excess work?

Most insurance policies will specify a standard or compulsory excess. 

This means you'll almost always have to pay a certain amount towards a claim, whichever policy you choose. 

The reason for this unavoidable excess is to dissuade people from making fraudulent claims on their policies. 

What UK insurance policies charge an excess?

Insurers apply an excess to all kinds of insurance policies, for example car excess works on the basis that if you pay more upfront you get a reduction on your monthly premium.

Excess is payable on most types of insurance including:

• Pet insurance

• Car insurance

• Home insurance

• Travel Insurance

What is a voluntary excess?

Most insurers will offer you the option of adding a voluntary excess to your policy. 

• This is where you can add an additional excess on top of your compulsory one, increasing the amount that you will need to pay when you make a claim

• Though the idea of voluntarily paying more towards your insurance claim may seem counter-intuitive, there are benefits that come with increasing your excess

Should I increase my voluntary excess?

A higher excess can mean cheaper premiums and your insurance will cost less in the long-run - as long as you don't make a claim.

• Increasing the amount you are willing to pay reduces the amount your insurer will pay if you make a claim - so you are 'rewarded' with cheaper premiums

• Increasing your voluntary excess in return for cheaper premiums may be appealing if you have a history of no claims and think it's unlikely that you'll make a claim anytime soon

• However there's no way of predicting the future so you could find yourself in a position where you have to make a claim and are stuck with paying out more to meet the cost

How much voluntary excess should I pay?

Only consider paying a higher up-front excess if you can afford to cover the excess in the event of a claim, 

• If you have savings you can benefit doubly from increasing your excess, by keeping some funds aside to cover excess in a savings account, while at the same time enjoying cheaper premiums

• If you can't afford the extra excess comfortably, setting it high means you may be put off making a claim on your insurance - which misses the point of paying out for insurance altogether

Example – paying an excess on your car insurance

If you choose to pay an excess of £400, rather than the voluntary excess of £250 and you make a claim for £1,000, you will keep the first £400 and the insurer will give you the remaining £600.

• If the claim is made on an accident at which you were not at fault, your insurer might pay your claim in full 

• Some insurance policies will waive the excess but it will depend on the insurance company’s terms and conditions

What are the drawbacks of increasing my excess?

By increasing your excess to include a voluntary excess, you are agreeing with your insurer that, should you need to claim on your insurance policy, you will pay out this extra amount.

How much excess should I pay on my car insurance?

• Younger drivers with car insurance  - drivers under 25 – often have to pay an additional compulsory excess on top of the standard excess if they need to make a claim.

• 'Young driver' excess is applied by some insurers as younger drivers are perceived to be higher risk and more likely to make a claim, with claims often more expensive.

• Insurers cover themselves by asking them to pay more towards the cost of a claim.

• For example, a compulsory excess of £150 may be added on top of a standard excess of £200. 

• Adding a voluntary excess of £100 may decrease your premiums, but could be counterproductive as you will be faced with paying out £450 if you make a claim.

Should I increase my insurance excess?

Deciding on whether or not to increase your excess is a gamble, based on risk. 

• By increasing it, you are gambling lower premiums against having to pay out more to meet the cost of a claim

• Any decision will largely come down to whether or not you can afford to meet this extra cost should you have to

Example – how a home insurance voluntary excess would work

If you have a standard excess on your home contents insurance policy of £200 and you add a voluntary excess of £100, your premiums may be cheaper - but if you need to claim, you'll have to pay out £300 to meet this cost rather than £200.

Cut the cost of your insurance

If you cannot afford the up-front cost of a higher voluntary excess, there are other things you can do to reduce your premiums

• If you are looking for cheaper car insurance consider taking an advanced driving test, or adding extra security to your car and if you have additional cars in the family consider a multi car insurance policy

• If you are looking for cheaper home insurance shop around for quotes and make sure your home security systems, alarms and locks are up to date 

Always compare pet insurance and travel insurance quotes before deciding which insurance company to go with