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19 Feb 2022

How to set the right excess on your car insurance policy

Less than half of drivers understand how car insurance excesses work

Only a quarter of drivers check the cost of their excess when taking out a car insurance policy, meaning many could be in for a nasty surprise should they make a claim.

New research by GoCompare has found that excesses are a widely misunderstood element of car insurance, with young drivers least likely to understand how compulsory and voluntary excesses work.

Here, we explain why setting the right excess is a vital part of taking out an insurance policy, and offers advice on finding a good deal when renewing your car insurance.

Drivers confused over how excesses work

New research by GoCompare has found that a third (36%) of motorists don't know the excess on their car insurance policy, and only a quarter (28%) check their excess amount before taking out insurance.

The price comparison website surveyed 2,071 drivers and discovered that less than half (47%) fully understood voluntary and compulsory excesses, a figure that dropped to just 18% of 18-34 year olds.

This lack of awareness means many drivers could face a big bill if they need to make a claim.

Of the drivers surveyed,13% said their excess was more than expected when they claimed, while 12% didn't know they'd have to pay it at all.

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What is an insurance excess?

When you take out an insurance policy, you'll almost always need to set an excess.

Your excess is the amount you'll need to pay up-front if you make a claim on your insurance.

Car insurance policies usually include both a 'compulsory' and a 'voluntary' excess. The compulsory excess is set by the insurer and can't be changed, but the voluntary excess is set by you.

If you make a claim, you excess will be the combined amount of these two sums. So if your compulsory excess is £200 and your voluntary excess if £150, you'll need to pay £350.

How do I choose an excess?

When comparing car insurance deals online, you can play around with the voluntary excess to see how it affects your quotes. Figures such as £150, £250 and £500 are among the options available on price comparison websites.

By choosing a higher excess you could cut the cost of your premium, but that can be a risky game.

If you set a voluntary excess of £500 to shave some money off your quote, you'll need to be able to stump up that amount if you need to make a claim.

Ryan Fulthorpe of Go Compare says: 'Knowing the excess you will need to pay if you need to make a claim is really important, as excess amounts can vary significantly.

'If you think you're only paying £150 but then the excess bill comes in at £500 - how could you afford that?'

With this in mind, you should always weigh up the pros and cons of setting a higher excess, and work out whether the reduction in the cost of your premium outweighs the risk of a higher bill if you need to claim.

Are smaller insurance claims worthwhile?

If you've got a big excess on your insurance policy it may prove to be a deterrent to claiming, especially if the value of the claim is relatively small.

We recently asked the comparison website Confused.com to run a series of test quotes for us on behalf of fictional customers. We found that a car insurance claim for £500 increased the average of the cheapest three renewal quotes by £129 to £169.

Once you've taken into account paying your excess, a possible rise in next year's insurance premium and the potential loss of your no-claims discount, a small claim may not be worth pursuing.

One word of caution: even if you don't make a claim after an accident, you'll still need to report the accidents and any damage to your car to your insurer. This won't affect your no-claims bonus if you have one.

Car insurance price comparison site

How to find the best deal on car insurance

If your car insurance is coming up for renewal, it's important to shop around to find the right deal.

In January, the car insurance 'loyalty penalty' was scrapped. This meant that insurers can no longer quote existing customers a higher price than they would an equivalent new customer.

While this a good thing in theory, there have been reports that it's led to insurance prices rising across the board, as brands hike prices for new customers rather than reducing them for existing ones.

This means that doing your research is still vital. Our story on the seven steps towards renewing your car insurance provides lots of great tips to help ensure you get a good price.

Which? Limitedis registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665and is an Introducer Appointed Representative ofInspop.comLtd for the introduction of non-investment motor and home insurance products (FRN 610689).Inspop.comLtdis authorised and regulated by the Financial Conduct Authority to provide advice and arrange non-investment motor and home insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130.Confused.comis a trading name ofInspop.comLtd.