What does excess mean on car insurance?

‘What is car insurance excess?’ is one of the most commonly asked questions among new drivers. It’s not immediately obvious what it means, and yet (almost) all car insurance policies have it.

So, go on… What is excess?

If something happens such as a collision, and you need to make a claim, the excess is the amount you agree to take on yourself.

Let’s say your excess is £250. If you bash your car and cause £600 worth of damage, then you’ll pay the first £250, and your insurance payout will be worth £350.

Whereas if you have a prang, and it causes £200 worth of damage, then it won’t be worth making a claim. You still have to tell your insurer, but your excess exceeds the amount you’d potentially receive as a payout.

Excess is divvied up into two types:

• Compulsory excess. This is the amount of excess set by your insurer, so it’s the lowest amount you can agree to. So while this amount may vary from provider to provider, you won’t usually be able to reduce this.
  

• Voluntary excess. This is the amount you agree to pay on top of your compulsory excess. And why would you want to take on more excess? Well, because a higher voluntary excess usually means a lower insurance price. This is because you’re agreeing to shoulder more of the risk.
  

It can be tempting to drive the cost of your car insurance right down by having greater excess. But it’s important to bear in mind that – no matter how good a driver you are – accidents can happen. For this reason, you shouldn’t set your excess at a level you couldn’t afford to pay if you did have to make a claim.

How much is the average compulsory excess?

According to research by price-comparison site GoCompare, in 2021, the average compulsory excess for certain types of claim were as follows:

• Accidental damage claim excess: £234

• Fire claim excess: £226

• Theft claim excess: £267
  

How is excess set?

The insurance provider will usually take a bunch of considerations into account when setting your excess. This includes:

• Your age

• The type of car you drive

• Any claims history you might have

Also, the amount of excess may vary depending on what’s damaged. Windscreen damage tends to have a lower excess, for instance, because it’s cheaper to repair.

Plus, if the excess was too much, no one would ever claim for it.

Which brings us to our next question…

Why do I have to agree to pay excess?

Because it makes insurance affordable, essentially. If there wasn’t an excess to pay in the event of the claim, then insurance companies would be taking on all the risk.

Imagine if you could claim for every little scuff. If that were the case, everyone would, and insurance companies would have to make payouts faster than you can blink. In this scenario, insurance would be ridiculously expensive in order to justify the costs.

Because you agree to take on some of the risk, this eliminates countless minor claims, and makes insurance more workable all round. Think of the excess as the buffer which makes insurance affordable enough to buy.

What happens if I have to make a claim?

If you need to make a claim, you may need to have the excess amount handy. For example, if your excess is £250 and you need to take the car to a garage after a collision, you might need to pay this amount before your insurer picks up the rest.

Depending on the situation, the insurance provider might choose to waive the excess, or deduct it from the final payout. You may well hear people tell you this is what happened to them. However, you shouldn’t bank on this happening. You may well need to make the excess payment upfront, which is why you should set it at a level you can afford.

You won’t have to pay an excess if a claim is made against you. In this instance, the claimant shoulders the excess.

Of course, the ideal situation is that you never have to make a claim – so fingers crossed for that 🤞