Car Insurance, Essential Information About Excess Payments
If you're like most drivers, you'll be well aware how important car insurance is – but if the excess payment sounds like a foreign concept to you, read on to find out what it means and why it's crucial that you understand its implications.
Approximately 50% of UK drivers don't have any idea about what excess payments are when they sign up for their car insurance policy. What this means is that if there were an accident and the driver didn't have at least this much in third party liability cover, they would have to pay 100% of the cost of repairs themselves.
We've compiled everything you need to know about excess payments into one handy blog post.
What is the Excess Payment?
If you own a car, there's almost no doubt that you will have some sort of car insurance.
The excess payment is the amount of money that you would have to pay if your car were involved in an accident.
Exceeding the speed limit, driving while intoxicated and other accidents caused by your negligence would result in a claim for compensation by the other party (or parties) involved in the accident. You could end up being liable to pay for everything as a result of their injuries or damage to property.
The excess amount varies from one insurance company to another; it can be between £250 and £1000, but it is usually not more than £1000.
Generally speaking, you are expected to pay a percentage of the overall value of the car and any third party liabilities. At most companies, this will be between 1% and 2%, but some companies have been known to charge considerably more than this; at other companies, the excess payment will be less than £50.
Do I Have to Pay a Deposit?
The majority of insurance companies in Britain use an agreement known as 'contract hire'. This means that when you agree to take out insurance on your vehicle, you become the legal owner by entering into a contract with your insurer. You'll then have to hand over a deposit of £50 (around $70) in order for them to process your application for insurance.
The excess payment comes from this deposit and will be deducted from the value of your claim (or total cost of repairs if there is more than one party involved). This is simply how it works with contract hire – most other vehicles are covered by 'policies'.
If you're a new driver with no history of accidents or claims, then may be your insurer will choose to waive the excess payment once they have processed your application for insurance. If not, you'll likely need to pay some sort of deposit in order for them to process and approve your application.
What is Third Party Liability?
Third party liability covers any party (other than yourself) who suffers an accident due to the negligence of another person.
This can include the other car owner, passengers in your car and pedestrians on the road.
The sum of money that you're liable to pay depends on how much damage was caused – the more severe the injury or damage, the higher your liability.
It is important to remember that third party liability is separate from your own insurance; if you have an accident, but there are no other parties involved, then you will be solely liable for any damages or injuries suffered in the accident.
Is a Deposit Necessary?
Your insurance company will require some form of payment as a deposit before they can cover a claim. In many cases, they will request a payment up front before granting approval for them to look into your application for insurance.
The deposit amount is not negotiable and will vary from one company to another. It is usually a percentage of your annual insurance premium, so it can be something like 1% or 2% depending on your preferred company and type of vehicle.
If you choose a smaller company that specializes in insuring young drivers, they may require a much higher deposit in order for them to process your claim. This is because younger drivers are more likely to file false claims.
Please bear in mind that there are many reputable insurance companies who will accept your application with little to no deposit; it just takes some time as you might have to wait until the next day in order for them to inspect your vehicle before finalizing the paperwork.
How Do Other Drivers and Insurance Companies Feel About Excess Payments?
Your excess payment acts as a sort of deterrent to other drivers when you drive. This is because they will know that if the accident caused serious damage or injuries, you'd be liable for paying it.
If you have a little more than the minimum amount of coverage, then other drivers know that they can take advantage of your insurer when you're at fault for an accident. In fact, many insurance companies will lower their excess payment if your car is used infrequently in order to encourage you to buy more protection.
It is important to note that if you are the driver whose insurance company requires a higher excess payment, then you can always lower it. This is because some companies will allow their policy holders to decrease the amount of excess free of charge.
Can I Request a Lower Excess Payment?
If your insurance company requires a high amount or you want to pay the lowest possible amount when it comes to paying for damages after an accident, then you will need to contact them directly and ask for this change. Your insurer can only lower its excess payment if the claim is truly minor – so don't be tempted into lowering the level of cover just for the sake of saving money.
Please bear in mind that this also applies to you if you're going to be faced with a claim for paying a high amount of excess. If your company requests more than the standard level, then ask them if they would be willing to reduce the amount until the claim is paid off.
Will My Insurance Rate Change Based on Excess Payment?
Your insurance company can decrease your premium by increasing the amount of excess payment. This is because it greatly increases their risk, hence leading to a higher cost. However, this only applies to policy holders who already have a high excess payment level (i.e., those who have been involved in previous claims).
So, if you're a new driver and have no accidents or claims, then you may not be asked to pay the highest excess payment. This is because your premium will remain the same until you have been involved in at least one accident.
If your company wants to increase your premium, they'll ask you to sign a new contract with them that has higher excess payment. Excess payment can also influence your car's insurance rating (as well as their overall risk). Therefore, it is highly recommended that you keep an eye on the level of excess being used by other drivers.
How Much Excess Is Necessary?
The amount of excess payment that you need to cover any claims after an accident will vary depending on the following:
The type of car you drive – If you're driving a large or heavy vehicle, then you'll need to have more than the standard level. However, this is not very important if you're buying your insurance right away.
If it's expensive – You may want to choose a cheaper policy in order to save money on the risk of your car being involved in an accident that causes major damage or injuries. However, although this will be cheaper for the first few years, it is likely that you will experience some sort of claim in these years as well.
Conclusion
Although it may be tempting to lower your excess payment when buying car insurance, it is not always a good idea. This is because although you'll save some money in the first few years, you won't be saving any money in the long run if your policy has a high excess payment. Plus, if you decide to switch companies later on, then this change in policies will affect the level of excess payment required – so try and make your decision when buying your insurance policy.
If you're looking for quality insurance for young drivers , then Smart Cover could be everything that you need. We offer all types of coverages as well as more affordable rates when compared to other companies.