When you have a claim on your insurance policy you thought was great value, you may not be too happy to learn how your insurer managed to quote such a cheap premium. Particularly when you find out you volunteered to take an increased excess amount.
It is now common to request an insurance quotation online and in many cases, the cheapest insurance quotations displayed on the quote system offer you a figure with a very high ‘voluntary’ excess. Those who are only looking at the price of the policy may not notice, or even understand, the implications of the high voluntary excess.
A voluntary excess can be an advantage as a lower premium is achieved, but you need to remember that this is not the total amount of excess that you pay. A voluntary excess is in addition to the standard policy excess. So, if you have a compulsory policy excess of £250 and a voluntary excess of £400 then you will need to find a whopping £650 excess yourself if there is a claim.
Take a small claim of say £700 for storm damage to your roof. If you’ve got a £650 excess then the claim payable by the insurer would only be £50 so it wouldn’t be worth claiming under your policy – and even if you did, the insurers would likely increase the premium at renewal.
Only today I have seen yet another online insurance quote which assumes I want a £400 ‘voluntary’ excess.
So beware, when comparing insurance premiums you need to make sure you are getting the level of excess that you are comfortable with. Make sure you don’t buy on price alone as the online quotes system will often give you a very high excess placing the onus on you to reduce it.
How to get your excess back into perspective
To bring the discount into perspective, you can do a calculation to illustrate whether you are getting value for money.
Additional excess amount ÷ amount of discount = X years
The answer to this calculation equals the number of years it would take to save the additional excess up in premium savings. So, the lower the answer, the better value the excess discount represents.
Eg.
An insurer offers a 10% discount for a voluntary excess of £100.00
If your premium is £120, the discount is £12.00.
100 ÷ 12 = 8.3
So it would take 8.3 years to save the additional excess amount, meaning if you had more than one claim in 8.3 years, you would end up worse off.
However, if the premium was £800, the discount would be £80.00.
100 ÷ 80 = 1.25
In this case, you would be saving money as long as you claimed less than once every 1 ¼ years, making the voluntary excess a far better value proposition.