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How does motor vehicle insurance excess work?

All motor insurance policies come with a compulsory excess built in. An excess is the amount that an insurance company will withhold from any claim and which must be paid by the claimant. For example, if you are involved in an accident for which your insurance claim is £2,000 and your policy has an excess of £100, then the insurer will pay £1,900 towards settling the claim, and you will pay the remainder.

In addition to a compulsory excess, many drivers choose to take out an additional voluntary excess. Generally, this has the effect of lowering your insurance premium but could significantly increase the amount you would need to pay out in the event of a claim; the claimant must of course pay both compulsory and voluntary excess amounts. There is thus a trade off between what you may have to pay out if you have an accident versus reducing your premium. Insurers will usually let you raise the amount of voluntary excess and accordingly reduce your premium as it means they will pay out less should you need to make a claim.

One of the main reasons for having insurance excess built into a standard or motor trade policy is to prevent the policyholder from needlessly making many small claims for minor damages – for example, a repair costing £50 would usually be paid directly by the driver without involving an insurance company; multiple claims can add significantly to future premiums and are not cost-effective. Insurance claims are generally only made when there is a significant repair bill involved. Note that should you make a claim on your own policy you will always pay the excess, regardless of fault but you may be able to claim the money back if the claim settles non-fault.

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The level of excess on an insurance policy can depend on a range of factors including driver age, claim history, no claims bonus (NCB), particular vehicles, driving convictions… For example, a younger driver may well pay a higher level of compulsory excess as there’s a statistically higher chance than an accident will involve one or more inexperienced drivers. Compulsory excess is applied to policies for both new and used cars.

An important point to note is that in the event of an accident where the other party is at fault and their insurance company agrees to pay out for the claim, you would not be required to pay the excess amount – the excess is purely for claims made under your own policy and where your insurance company cannot recover costs from the other party’s insurer.


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