How to Choose a Car Insurance Excess You Can Actually Afford

Every car insurance policy has an excess. It is the amount the driver pays towards the cost of a claim before the insurer pays the rest. Choosing the excess is one of the few choices a driver makes that directly affects both the price of the policy and the cost of a claim.

A high excess usually lowers the premium, which makes it tempting. But the excess has to be paid at claim time, often when money is already tight after an accident. This guide explains how excess works and how to choose a figure that is genuinely affordable.

What a car insurance excess is

The excess is the driver’s share of a claim. If a repair costs more than the excess, the driver pays the excess and the insurer pays the rest. If the repair costs less than the excess, the driver usually pays the whole repair cost and there is little point in claiming.

The excess applies to most types of claim, including damage to the driver’s own car and, in some cases, theft. It does not usually apply to a claim made against the driver’s liability for damage to someone else, but the policy wording should be checked for the exact terms.

Knowing the excess before buying a policy is essential. It is one of the numbers that should be compared alongside the premium, because a cheap premium with a very high excess can be expensive in practice.

Compulsory and voluntary excess

Most policies have two parts to the excess. The compulsory excess is set by the insurer and cannot be changed. It often varies by driver, with younger or less experienced drivers usually facing a higher compulsory excess.

The voluntary excess is the extra amount the driver chooses to add on top. Raising the voluntary excess usually lowers the premium, because the driver is taking on more of the risk. Lowering it raises the premium, because the insurer takes on more.

The total excess is the sum of the two parts. A policy might have a compulsory excess and a voluntary excess that together add up to a figure the driver must be ready to pay. Both parts should be checked before the policy is bought.

The affordability test before you choose

The simplest test is to ask whether the excess could be paid tomorrow, without borrowing, if an accident happened today. If the answer is no, the excess is too high. The excess is not a distant figure on a document. It is a bill that arrives at a stressful moment.

It helps to think about the savings the policy holds. If the household has a small emergency fund, the excess should fit comfortably inside it, with money left over for other costs such as a courtesy car, travel or time off work.

A useful habit is to set the money aside mentally when the policy starts. Treating the excess as money that is already spoken for makes the decision real, and it avoids the shock of finding the amount when a claim is made.

It can also help to compare the excess with the cost of a typical small repair, such as a bumper or a wing mirror. If the excess is close to the cost of a small repair, the driver will usually pay for those repairs out of pocket, which means the policy is mainly there for larger claims. Knowing that in advance avoids disappointment when a small claim is not worth making.

The trade off between excess and premium

Raising the excess lowers the premium, but the saving is often smaller than people expect. Going from a low excess to a very high one might save a modest amount each year, while the extra amount at risk in a claim is much larger. The trade is only worth it if the saving is real and the higher excess is affordable.

It helps to compare the numbers directly. If raising the excess saves a small amount on the premium but adds a large amount to the cost of a claim, the driver is taking on a lot of risk for a small reward. If the saving is large and the driver could pay the higher excess easily, the trade may be sensible.

The right balance is different for each driver. A driver with a strong emergency fund may accept a higher excess. A driver with little spare money is usually better with a lower excess, even if the premium is a little higher.

How often you claim matters

A driver who rarely claims may be comfortable with a higher excess, because the chance of paying it in any given year is low. The saving on the premium is kept each year, and the excess is only paid in the rare year when a claim is made.

A driver who claims more often, or who drives in conditions where small knocks are common, should think carefully. Paying a high excess more than once in a year can quickly wipe out any saving on the premium.

Claim history is a guide, not a guarantee. A driver with no claims for years can still have an accident tomorrow. The excess should be affordable even if the claim comes in a bad year, not only in a good one.

Picking a figure you can live with

A good way to choose is to start from what can be afforded, then look at the premium for that figure. If the premium is too high, the driver can look at other ways to reduce the price, such as a different level of cover, a change in mileage, or comparing other insurers.

It also helps to check the excess for different types of claim. Some policies have a different excess for windscreen damage, theft or fire. Knowing each figure avoids a surprise when a specific type of claim is made.

Once the policy is bought, the excess should be noted somewhere easy to find, such as with the policy documents or in a phone note. If a claim happens, knowing the figure straight away makes the conversation with the insurer simpler and the decision to claim clearer.

Finally, the excess should be reviewed at each renewal. Finances change, and a figure that was right last year may no longer fit. A short review each year keeps the excess in line with what the driver can afford today, rather than what could be afforded when the policy was first bought.

This guide explains how cover generally works. It is not personal financial advice. Check your own policy wording before you decide.