How to Choose the Perfect Insurance Excess and Save Hundreds Every Year

AngelaWelcome to Cost Saver Conversations. I'm Angela, and I ask the practical questions so you can quickly understand what matters. Today, I'm joined by Asad. Asad: Hi Angela. We are unpacking "How to Choose the Perfect Insurance Excess and Save Hundreds Every Year" today and tying it back to the wider Cost Saver ecosystem, including tools like insurance excess calculator, so you can turn insights into action quickly. Angela: Just a heads-up before we dive in: we are your synthetic hosts. We are great with numbers, but as AI, we can sometimes be confidently wrong. Think of us as the digital versions of your most knowledgeable, slightly caffeinated friends. Asad: Exactly. Treat this chat as a smart estimate only, not as professional financial guidance. Always check important details with official sources or a qualified expert before making any big decisions. Angela: Alright, so — welcome back to MoneyWise UK, the podcast where we, um, try to make sense of all the financial stuff that honestly keeps us up at night. [laughs] Today we're diving into something that I think most of us just... kind of wing it with? Insurance excess. And here to help me not sound completely clueless is our resident money guru, Asad. Hey! Asad: Hey Angela! [chuckles] Yeah, no, you're spot on actually. Insurance excess is one of those things where people just pick a number and then... that's it for the next five years, right? Angela: Guilty as charged. Asad: Ha, we all are! But look, I was just — my neighbour Sarah, right? She discovered she'd been basically throwing away £240 a year. Every year. For three years. Angela: Wait, what? How? Asad: She'd gone for the lowest excess option on her car insurance, thinking it was the safe choice. Which, I mean, fair enough, that's what you'd think. But here's the thing — she hadn't made a single claim in five years. Not one. Angela: Oh wow. So she was paying for protection she wasn't even using. Asad: Exactly! And when she actually ran the numbers — well, we've got this calculator thing — she could've saved £240 annually just by adjusting her voluntary excess. That's... that's a weekend away, you know? Angela: That's mental. Okay, so — and I'm going to sound really basic here — but can you just... what actually IS insurance excess? Because I feel like I should know this properly by now, but— Asad: —no, no, it's actually not that straightforward! So, um, basically it's the amount you pay towards any claim you make. It's like... your contribution? Your share of the risk. Angela: Right. Asad: And in the UK we've got two types. There's compulsory excess, which the insurer sets — you can't change that one. Young drivers, oh man, they get hammered with this. Often £500 or more just as compulsory. Angela: Ouch. That's before they even choose anything? Asad: Before they even choose anything! And then there's voluntary excess, which is the bit you actually control. You add that on top of the compulsory amount. So if you've got, say, £250 compulsory and you choose £500 voluntary— Angela: —you're on the hook for £750 if something happens. Asad: Yep. And here's the kicker that people miss — it's per claim, not per year. Angela: Oh! [laughs] I definitely thought it was like an annual thing. Like, you pay it once and you're covered for the year? Asad: Nope! Three claims, three payments. Which is... yeah, it can add up fast. Angela: That's actually terrifying. So why would anyone choose a higher excess then? Asad: Ah, well, that's where it gets interesting. For every hundred pounds you increase your voluntary excess, your premium typically drops by, um, somewhere between 5 and 15 percent. Motor insurance gives you the biggest discounts usually. Angela: Okay, but like... can we talk real numbers? Because percentages always make my brain just— Asad: [laughs] Yeah, fair. So, let's say you're a 35-year-old in Birmingham, clean driving record. With £250 voluntary excess, you might pay £680 a year for car insurance. Angela: Okay... Asad: Bump it to £500 voluntary, that drops to £590. Go to £750, you're looking at £540. And if you're really brave and go for a grand— Angela: A thousand pounds?! Asad: —you could be paying just £510 annually. So that's a £170 difference between the lowest and highest. Angela: Right, but... I mean, you have to actually have that thousand pounds sitting around if you need it. Asad: Exactly! And this is where people mess up. Because look, only about 15% of drivers make a claim each year. For homeowners it's even less, like 12%. So most people won't claim, which is great, but— Angela: —but when you do need it, it's usually at the worst possible time, right? Asad: Oh, always! Your boiler breaks in January, right after Christmas has cleaned you out. Or your car decides to give up the day before payday. And suddenly that £500 you saved by choosing high excess? You're scrambling to find it. Angela: Ugh, I can feel the stress just thinking about it. Asad: Right? So honestly, the golden rule — and I really can't stress this enough — never, ever choose an excess higher than what you've got in your emergency fund. Angela: That seems... really obvious now you say it. Asad: It does! But you'd be amazed how many people don't think about it. They see the premium saving and just... [trails off] Angela: Click. Yeah. So how do we actually figure out what's right for us then? Because everyone's situation is different, right? Asad: Well, yeah, it's super personal. But there are some things to look at. First, your claim history. Have you claimed in the last five years? Angela: Um... actually, no. Not once. Asad: Right, so you're probably a good candidate for higher excess. But someone who claims every couple of years? They should probably stick with lower amounts, even if the premiums hurt a bit. Angela: Makes sense. What else? Asad: Your financial buffer, obviously. And just... your general risk tolerance? Some people genuinely sleep better knowing they won't face huge bills. Others are fine rolling the dice to save money month to month. Angela: I'm definitely in the 'sleep better' camp. [laughs] Asad: Nothing wrong with that! But there's also a mathematical way to look at it. The break-even point. Angela: Oh, this sounds proper maths-y. Asad: It's actually not too bad! So you — okay, let me use an example. You're choosing between £250 and £750 voluntary excess, right? Angela: Mm-hmm. Asad: The premiums are £680 and £540. So you're saving £140 a year with the higher excess. The difference in excess is £500. You divide £500 by £140... Angela: Which is... um... three and a bit? Asad: 3.57 years, yeah. So if you claim less than once every three and a half years, the higher excess saves you money. If you're claiming more often than that, stick with the lower one. Angela: Oh! That's actually really helpful. Like, a proper formula to work it out. Asad: Right? Takes the emotion out of it. Though, I mean, it assumes your claims are always above the excess amount, which for car insurance they usually are, but... Angela: But not always. Hmm, I hadn't thought about it like that. Does this work for all types of insurance? Asad: Sort of, but each type has its own quirks. Like, with car insurance, experienced drivers can usually handle £500 to £750 voluntary excess no problem. But young drivers? They're already facing massive compulsory excess, so adding more is just— Angela: —asking for trouble. Asad: Exactly. Home insurance is different again. The premium differences are smaller — often just £30-60 annually between minimum and maximum options. Not as dramatic. Angela: So less incentive to go high? Asad: Well, it depends on your property. New build with warranties? Yeah, go higher. Victorian terrace with dodgy plumbing and an ancient boiler? [laughs] Maybe keep it low. Angela: Oh god, that's literally my house. The boiler makes these sounds... Asad: [laughs] Yeah, then definitely keep that excess manageable! Oh, and some insurers let you have different excess for buildings and contents. Angela: Really? So you could go high on one and low on the other? Asad: Yep. Maybe high on buildings if you're confident in the structure, but low on contents if you've got valuable stuff. Angela: That's clever. What about pet insurance? Because I know that's a whole thing. Asad: Oh, pet insurance is weird. Most policies charge excess per condition per year, not per claim. Angela: Wait, what's the difference? Asad: So if your dog gets arthritis and needs ongoing treatment, you only pay the excess once that year for all the arthritis claims. Not every single visit. Angela: Oh! That's actually way better than I thought. Asad: Right? So for young, healthy pets, you can probably go higher on the excess. But older pets, or breeds that