A Complete Guide to Insurance Excess
But what is insurance excess and why do you have to pay it?
Bobatoo reveals all in this complete guide to insurance excess.
The excess fee on your insurance policy is the amount that you have agreed to pay if you ever find yourself needing to make a claim.
There are typically two types of insurance excess:
What is compulsory excess? – This is an excess fee which is completely non-negotiable and set by your insurance provider. This is the very minimum excess which you are expected to pay when making a claim on your insurance.
What is voluntary excess? – If you choose to pay voluntary excess on your policy, this is an excess fee which must be paid on top of your compulsory excess, but the value can be altered when you take out your policy.
The lower you set your voluntary excess, the more expensive your insurance premium will be – but you won’t have to pay as much if you make a claim.
These two excess fees will be added together following a claim and can either be:
- Deducted from your eventual payout, or
- Requested as a full payment before your claim can be completed
For example, if you make a claim on your car insurance to cover £2,000 worth of repair bills and have a combined excess fee of £500 (£250 compulsory excess and £250 voluntary excess, for example), you will only receive £1,500. You would have to pay up the £500 excess in order to receive your insurance payout, however.
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Why do insurance companies charge excess?
The main reason behind insurance companies charging excess is to discourage customers from making minor claims, which, with the administration charges involved, could lose the insurer money.
For example, if you make a claim on your insurance for £50 worth of repairs, it might cost your insurer £50 just in admin fees. With an excess fee, customers are unlikely to claim unless the cost of repair exceeds their combined excess.
Insurance companies let you decide how much voluntary excess you want to pay if you make a claim, but how much should you pay?
As a rule of thumb, Bobatoo would suggest that you look for insurance policies with the expectation of paying around £250 in voluntary excess. When looking for car insurance quotes, you can alter the amount of voluntary excess to see what difference it makes to your insurance quote.
If you consider yourself a safe driver, you may want to increase your voluntary excess to get yourself a cheaper insurance premium – but remember that accidents do happen, and it could prove expensive if you have a high voluntary excess. If you don’t think you’ll be able to afford a higher excess, it simply isn’t worth the risk.
Always opt for an excess amount that you know you’ll definitely be able to afford in the unexpected event of a road traffic accident.
Excess insurance – sometimes referred to as an excess waiver – is a separate insurance policy designed to cover the costs of your compulsory and voluntary excess when you make a claim on your insurance.
You can choose to have a smaller percentage of your excess covered (perhaps just your compulsory excess) or you can pay more to cover your excess in its entirety.
Find out more about excess insurance here.
When taking out an excess insurance policy, you will have the choice of two policies: single and lifestyle.
A single excess insurance policy, as the name suggests, covers your excess fees on one insurance policy – whether that’s a car, home, travel or any other kind of insurance policy.
Lifestyle excess insurance is a bit more complicated, as it covers your excess fees on multiple insurance policies. Your lifestyle excess insurance policy will cover the excesses on all of your vehicle, travel, home and gadget insurance, but may come with a few restrictions.
For example, you might be limited to claiming a certain amount of excess per year, so if your limit is £500, this could be taken up by one car or home insurance claim.