Do we need car insurance excess?

Will Thomas, head of motoring at Confused.com, explains why we need to make excess payments on our car insurance.
Question: Do we really need to pay excess on our car insurance?
Answer: For the most part, yes we do need to pay excess.
When it comes to car insurance, the excess on policy is a fixed contribution that you, as the policy holder, will have to pay up in the event of a claim. So if the excess on your policy is £500, and you’re making a claim for £750, the insurance provider will only pay out £250 as the first £500 will come out of your pocket.
The excess is payable regardless of fault. However, in the case of a non-fault claim the excess can be recovered from the third-party insurer.
Excess is divided into two parts – compulsory and voluntary. Compulsory is the amount set by your insurer, and voluntary is the amount you choose to take on yourself.
In incredibly rare cases, compulsory excess may be zero – which is why I said we need to pay excess “for the most part”. But not having a compulsory excess is increasingly unlikely, and will only happen in exceptional circumstances.
So why do we need to pay it? Well, it’s all to do with the balance of risk. If we didn’t have to pay excess, then the weight of risk would fall disproportionately on insurers’ shoulders. People would be able to make a deluge of claims for all manners of little things, and the cost to the insurer would be insurmountable.
Setting an excess – effectively a minimum claim amount before the insurer has to pay – works in everyone’s favour. It means that insurers can operate without having to constantly leak payments. In turn, the premiums we have to pay are tempered, and aren’t prohibitively expensive.
When we go beyond compulsory excess and into voluntary amounts, the risk we shoulder ourselves will reduce our premiums further still. However, it’s important to remember that – regardless of how good a driver you are – accidents do happen, so please don’t accept a level of voluntary excess that you couldn’t afford to pay in the event of a claim. And also remember that you should set an excess that's proportional to the value of your car. It’s all about finding the right balance.