Is it worth having excess on Insurance?

 

When purchasing an insurance policy, it is important to understand the various features and their potential impact on your financial reserves. 

 

One such aspect is the policy excess, which can be a confusing and often overlooked component of the insurance process. 

 

Here, we'll discuss the difference between compulsory and voluntary excess, the advantages of raising your voluntary excess, how having a higher excess might deter claiming, and what exactly an excess is on an comprehensive motor insurance policy.

 

What is an insurance policy excess?                                       

 

An insurance policy excess is part of an insurance claim that the policyholder must pay before any contribution from the insurer. 

 

For example, if you make an insurance claim that costs £2,000 and you have a £500 excess written into your insurance terms and conditions. This means you must pay £500 towards the claim cost, with the insurer paying the remainder. 

 

Compulsory vs. Voluntary Excess: Understanding the Basics

 

There are two types of excess: compulsory and voluntary. 

 

Compulsory excess is a fixed amount set by your insurer, which you must pay in case of a claim. This amount is exists to help minimise the risk of fraudulent or frivolous claims.

 

Voluntary excess is an additional amount you pay on top of the compulsory excess. This figure you set when you purchase your insurance policy. 

 

The aim of this optional amount is to lower your overall annual premium. 

 

By agreeing to pay a higher excess, you are effectively taking on more financial responsibility in the event of a claim, reducing the insurer's risk and leading to lower premiums.

 

Raising Your Voluntary Excess: The Pros

 

There are several advantages to increasing your voluntary excess, the most obvious being the potential for reduced premiums. By opting for a higher excess, you may see significant savings on your insurance costs. 

 

This can be especially beneficial for those with a low-risk profile or a history of few claims, as they are less likely to need their insurance coverage frequently.

 

Moreover, having a higher excess can encourage more mindful decision-making when it comes to using insurance. This added financial responsibility might prompt policyholders to take better care of their insured assets or make more informed decisions about when to file a claim.

 

The Deterrent Effect: A Higher Excess and Claiming

 

A higher excess can act as a deterrent to filing claims, particularly for smaller incidents. With a larger sum of money at stake, policyholders may be more hesitant to make a claim unless the situation genuinely warrants it. 

 

This can result in fewer claims being made overall, which can ultimately lead to lower premiums for everyone.

 

However, it's important to strike a balance when setting your voluntary excess. An excess that is too high can be financially burdensome in the event of a claim, leaving you struggling to cover the costs. It is essential to consider your financial situation and risk tolerance before deciding on an appropriate voluntary excess amount.

 

Motor Excess Insurance the answer?

 

If you want to take a higher excess on your motor insurer, you may look at motor excess protection insurance to mitigate your risk. This is an additional insurance product that can be used to claim back any excess you have to pay. 

 

Remember, though, if you take a higher excess, you must pay this before claiming it back from a motor excess cover policy. If you have a £1,000 excess, then you must reach this cost in a motor excess insurance claim to be charged it. If the claim cost was only £800, you would have to pay this, and you could not claim it on any private motor excess insurance policy. 

 

In conclusion, having excess on insurance can be a valuable tool for managing your premiums and encouraging responsible behaviour when it comes to making claims. By understanding the difference between compulsory and voluntary excess and the potential advantages of raising your voluntary excess, you can make more informed decisions about your insurance coverage and ensure you're striking the right balance between cost and risk.