How does car insurance excess work?

If you make a claim on your insurance policy, car insurance excess is the amount you will pay towards that claim. There are two types of car insurance excess – one compulsory, the other voluntary. The compulsory excess that your insurance company sets is the amount you must pay towards any repair done to your vehicle if you cause an accident. The voluntary excess is an optional amount on top of this – which means you’ll pay more towards repairs – but your annual premium price will come down in exchange.

When you apply for car insurance, you’ll be given the option to adjust your ‘voluntary excess’ towards the end of the process – and changes can make a big difference to the amount you’ll pay for your cover. 

It might be tempting to put your excess up to the maximum – especially since it’ll bring your overall premium price right down.

Here, we’ll look at car insurance excess payments in a little more detail – so you can work out what the right level is for you.

What is excess insurance?

In the world of insurance, an ‘excess insurance’ policy is one which includes an agreed contribution from the policy holder towards the cost of any claim that’s made.

Almost all car insurance policies are offered with an insurance excess. The overall excess you’ll pay is made up of two parts – a compulsory excess set by the insurer and a voluntary excess that you set when you take out your policy.

You will only need to pay this excess to repair damage done to your vehicle in an accident that is fully or partially your fault.

Generally, the higher the overall excess, the lower your premium cost will be. The reason is fairly simple – if you’re willing to pay towards any damage done to your car, the amount the insurer needs to pay out is reduced. In an insurer’s eyes, this also reduces the risk you pose – and, as with all insurance, the lower the risk; the lower the cost.

How do excesses work?

When you’re filling out the information we need to provide a range of car insurance quotes, you’ll see two figures mentioned – a ‘compulsory excess’ and a ‘voluntary excess’. 

One of the ideas behind an excess is to discourage drivers from making small claims every time they pick up a slight knock, scuff, or chip on their vehicle. Insurance companies do this by making customers pay for a portion of any work that’s required for their own vehicle.

What are the different kinds of excess? 

We’ve already mentioned that you’ll come across both a compulsory and a voluntary excess when you’re searching for a good deal on your insurance – so what’s the difference?

What is a compulsory excess?

A compulsory excess is set by the insurance company you’re purchasing your policy through. The amount will be decided by the insurer based on the level of risk they consider you to pose.

Unlike a voluntary excess, a compulsory excess cannot be moved up or down. Therefore, if you cause and accident and your car is damaged, as an absolute minimum, you will have to pay the amount of compulsory excess towards any repair work your vehicle needs.

How does a compulsory excess work?

If you’re involved in an accident that’s your fault, you will have to decide whether or not you use your insurance to claim for damage done to your car. Of course, any damage done to other people’s property will be covered and paid out by your insurer – but they won’t force you to have your car repaired.

If you do decide to have your car repaired, you’ll pay your compulsory excess amount towards the repair bill.

So, if you caused an accident that resulted in £1,000 worth of damage to your car, a compulsory excess of £200 means you’d foot the first £200 of the bill – and your insurer would pay the remaining £800. This is assuming you had no voluntary excess to pay.

Although you’re paying for a portion of the work to be done, you’ll often find you pay this amount to the insurer, rather than the garage that’s handling your repair. Then, your insurer handles the full repair payment.

What is a voluntary excess?

A voluntary excess works in a similar way to the compulsory excess – the only difference is, you decide how much voluntary excess you’d like to pay.

Sometimes, there’s an option to pay no voluntary excess – but usually, the voluntary excess amount will be pre-filled at around £100. Of course, you can increase this if you wish – usually up to £750 or more.

Again, since insurance costs are based on risk, if you’re willing to pay a higher voluntary excess, the risk of your insurer having to pay out is reduced. Therefore, a higher voluntary excess means your overall policy price is likely to come down. 

How does a voluntary excess work?

As we’ve explained in the compulsory excess example above, a voluntary excess also only applies if you decide you want to claim for repair work needed on your car after an accident that was your fault.

Assuming you claim, you’ll pay both the compulsory excess amount and the voluntary excess amount.

So, let’s say you have a compulsory excess of £200 and a voluntary excess of £300. If you caused an accident that resulted in £1,000 wort of damage to your car, you’d be expected to pay both these excess amounts towards the repair – a total of £500. Then, your insurer would pay the remaining £500.

When will you have to pay an excess?

Any excess payment you make will only ever be to cover repairs to your own vehicle if you’ve caused an accident. 
For example, if you run into the back of another car, your insurance company will handle the repairs to both vehicles – but you’ll be expected to pay the excess for damage that’s done to your car.

On the other hand, if another car drives into you – you won’t have any excess to pay, as the other person’s insurance company will pay for the repair to your car. Even if your insurer asks you to pay an excess initially, you’ll generally get this refunded when they get it back from the other person’s cover provider.

How does hire car excess insurance work?

Another instance where you’ll see an excess discussed is if you ever hire a car for short term use. 

With many rental car providers, the excess (sometimes called a ‘deductible’) that you’d be expected to pay in the event of an accident is quite large – so rental companies often allow you to pay a little more for your cover to bring this excess payment right down – or get rid of it completely. 

For instance, if you hire a car, you’ll get the normal insurance package included – known as a ‘collision damage waiver’ or CDW. If you were unlucky enough to have your hire car stolen or damaged, you’d pay an excess amount that’s often hundreds (and sometimes even thousands) of pounds towards the damage.

With a car hire excess optional extra, you’ll be protected against this large payment should something go wrong when you’re in possession of the hire vehicle. The cost of this additional excess protection ranges from around £13 per day – right up to £30+. 

In the UK, car insurance is regulated by the Prudential Regulatory Authority (PRA), which is part of the Bank of England and the The Financial Conduct Authority (FCA). Car insurance complaints may also be dealt with by the financial ombudsman service.