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Understand your Excess

Thu, 12/06/2014
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Insurance is all about managing risk.  One aspect of risk management by the insurer is the application a policy excess to ensure the policyholder shares in any loss. The excess is the first amount of any claim that is paid by the policyholder.  Excesses come in different guises and can be compulsory (applied by insurers) and voluntary (accepted by policyholders usually in return for a discount from the premium).

What it is, how does it work and when will I pay it?

Virtually all car insurance policies are subject to an excess that will be applicable to any claim that involves the insured vehicle such as repair following an accident or the total loss of the vehicle due to accident, fire or theft.  Following repair of an insured vehicle under the terms of a motor insurance policy, the policyholder must pay the amount of the excess to the repairing garage before the garage will release the vehicle. Repair costs in excess of the excess will be met by the insurance company.

For example:

  • Your policy has a £250 excess
  • There is £2,000 worth of damage sustained to your vehicle
  • After repair you pay the repairer £250
  •  Your insurance company will, therefore, pay the repairer the remaining £1,750.

Voluntary

This is the element of the excess that you have control over when arranging cover.  What you select as your voluntary excess depends on your personal risk appetite and will naturally vary from driver to driver.  Those who volunteer to have a higher excess will do so because in most cases it can result in a lower premium.  This is because in the eyes of the insurance company, you are shouldering a greater portion of any future claim, thus lowering the potential financial loss for the insurer.  On top of which, by having a large voluntary excess, it is presumed that the policyholder will drive more carefully as he has more at stake.  

Compulsory

When selecting a voluntary excess, it is important to take into account any compulsory excess that already applies to the policy as this will be combined with the voluntary amount, creating an overall policy excess.  A compulsory excess is an amount automatically set by your insurance company, it is therefore something that you will not have any control over.   Insurance companies tend to set a minimum compulsory excess (which will vary from company to company) for all policies. The compulsory excess applied to a policy may increase due to factors such as previous claims experience of the policyholder or the value of the vehicle. High value vehicles often attract much higher excesses as even minor repairs can be very expensive.  You should always check what the compulsory excess is on any quotation you obtain and  consider it in conjunction with the premium charged.     

Young and Inexperienced Drivers Excess

In addition to any compulsory policy excesses that might apply, virtually every motor insurance policy includes young and new driver excesses. In insurance terms, anyone under 25 years of age is classified as a young driver. Generally insurers have two categories of young driver, those aged 17 to 20 years of age and those aged 21 to 24 years of age. Each of these age groups will be subject to a young driver excess which is in addition to any other excess that applies to the policy. The 17 to 20 group will have a higher excess than the 21 to 24 group reflecting their inexperience. Furthermore, any driver aged  25 or over who is driving on a provisional licence or has held their full licence for less than a year will also usually be subject to an increased compulsory own damage excess, usually equivalent to that applied to the 21 to 24 age group.

It is important to understand that any young driver excess applies not only if the car is being driven by a young driver, but if a young driver is deemed to be in charge of the said vehicle, i.e. damage occurs to the vehicle when it is parked (and it was a young driver who was the last driver).  The young/inexperienced driver excesses will be clearly described in the policy documents and should be brought to the attention of any proposer at the quotation stage.

Theft Excess

Excesses are not just applicable to Comprehensive policies. Third Party, Fire and Theft policies will often have compulsory excesses applicable to any fire or theft claims. Higher theft excesses may well be imposed by insurers if there are circumstances that result in a higher than average theft risk. 

Windscreen Excess

Claims for damage to windscreens are dealt with under the windscreen section of Comprehensive policies. These sections are subject to specific windscreen excesses that are usually lower than the policy excesses. The young and new driver and compulsory excesses do not apply to windscreen claims so only the windscreen excess is applied to the claim.  Additionally, a number of insurance companies will waive the windscreen excess if the windscreen merely requires repair rather than replacement.  Repair is usually applicable to small chips than can be filled with an epoxy resin that leaves a virtually invisible repair.

One thing to be aware of is that insurers often have different windscreen excesses with the lower excesses applying if repair or replacement is carried out by their recommended  windscreen repairer.

Excess Protection

Having paid the policy excess following repair of their vehicle, policyholders may have the opportunity to recoup the amount. Where the repairs were necessitated by a non-fault accident the excess can be claimed back from the insurers of the responsible person. Some insurers/brokers will provide assistance in the recovery of the excess by provision of Uninsured Loss Recovery insurance.

However, should the policyholder have been at fault for the accident there will be no one to recover the excess from unless the policyholder has purchased Excess Protection insurance.

Excess Protection insurance is an extra, stand-alone, policy that, for a small premium, reimburses the policyholder for any excess (up to the limit purchased) the policyholder has paid even if the loss resulted from a fault accident. This is a particularly useful cover in cases where cumulative excesses result in a substantial overall figure.   When purchasing motor insurance your insurance company/broker should provide you with full details of all excesses that apply to the policy. It is very important that you understand exactly how and when the excesses are to be applied to any claim you may make. Ensure the “cheap” premium you are being quoted does not have a sting in the tail in the form of a substantial excess. It may be that a slightly higher premium with a lower excess is the better option. This is particularly relevant when using price comparison sites as they may assume you will accept a higher voluntary excess in order to be able to quote you a cheaper price.  

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