Choosing the right car insurance excess in Australia can significantly impact your premiums and out-of-pocket expenses when making a claim. This article breaks down everything you need to know about car insurance excess, helping you make an informed decision that suits your budget and risk tolerance.
Understanding Car Insurance Excess
Your car insurance excess is the amount you agree to pay upfront when you make a claim on your car insurance policy. Think of it as your contribution towards the repair or replacement costs. The insurer covers the remaining expenses according to your policy’s terms and conditions. It’s a fundamental part of most car insurance policies and acts as a way to reduce premiums and discourage frivolous claims.
Types of Excess: Navigating the Options
The excess isn’t a one-size-fits-all situation. Australian car insurance policies typically offer several types of excess. Knowing the difference is crucial for choosing the right policy for you.
Standard Excess
The standard excess is the most common type. It’s the default excess amount set by the insurer and usually applies to most claims. Let’s say your standard excess is $500. If you’re involved in an accident and the repair costs are $3,000, you’ll pay the first $500, and your insurer will cover the remaining $2,500 (minus any other applicable excesses).
Additional Excesses
Additional excesses can apply in specific circumstances, on top of your standard excess. These typically relate to driver age or experience, the type of vehicle, or a specific incident. Examples include:
Age Excess: This applies if the driver involved in the accident is under a certain age (e.g., under 25 years old). These excesses can be significant, reflecting the higher statistical risk associated with younger drivers. A 20-year-old driver might face an additional excess of $400 to $800, on top of the standard excess.
Inexperienced Driver Excess: Similar to age excess, this applies to drivers with limited driving experience, even if they are over the age threshold for the age excess. This may be defined as someone with less than 2 years driving experience on their license.
Undeclared Driver Excess: If someone not listed on your policy drives your car and causes an accident, you may have to pay an undeclared driver excess. This excess is designed to deter policyholders from letting unlisted drivers use their vehicles. The cost could be substantial, often ranging from $600-$1000 or even more. Check your policy wording for exact costs.
Windscreen Excess: Some insurers offer a reduced or zero excess for windscreen claims if only the windscreen is damaged and no other damage occurs.
Choice of Repairer Excess: Some policies let you choose your own repairer. However, if you do, an additional excess might apply. If you stick to the insurer’s approved repair network, you might avoid this extra charge.
Example: You have a standard excess of $500, an age excess of $600 (for drivers under 25), and a choice of repairer excess or $300. Suppose a 22-year-old driver causes an accident, and you choose your own repairer. You could be looking at a total excess of $500 + $600 + $300 = $1,400.
Voluntary Excess
This is an excess amount that you choose when taking out your policy. It allows you to adjust your premium. Increasing your voluntary excess generally lowers your premium, while decreasing it raises your premium. It provides a degree of control and personalization to your policy.
How Excess Impacts Your Premiums
The relationship between excess and premiums is inverse: higher excess, lower premium; lower excess, higher premium. This is because by agreeing to pay a larger share of the costs in the event of a claim, you reduce the insurer’s risk, and they reward you with lower premiums.
Real-world example: Let’s say you’re comparing two comprehensive car insurance policies. Policy A has a standard excess of $500 and an annual premium of $1,200. Policy B has a standard excess of $1,000 and an annual premium of $1,000. Choosing Policy B saves you $200 per year, but you’ll pay an extra $500 if you need to make a claim ($1,000 – $500 = $500).
The amount of savings can vary widely depending on the insurer, your car, and your driving history. Some savings may be modest, while other times you will find significant cost benefits. It’s important to do the math and assess your own risk tolerance.
Choosing the Right Excess Amount: Key Considerations
Selecting the ideal excess amount requires careful evaluation of your financial situation, driving habits, and risk appetite. There’s no universally correct answer, but considering the following factors will help you make an informed decision.
Your Budget and Financial Situation
Can you comfortably afford to pay the excess amount if you need to make a claim? Assess your savings and emergency fund. If you’re on a tight budget, a lower excess might be preferable, even if it means paying a slightly higher premium. However, if you have ample savings, you might be comfortable with a higher excess to save on your annual premium.
Your Driving Habits and Risk Profile
How often do you drive, and what kind of driving do you do? If you’re a high-mileage driver who frequently drives in congested areas, your risk of being involved in an accident is higher. In that case, a lower excess might be a safer bet. Conversely, if you’re a low-mileage driver with a clean driving record, you might consider a higher excess.
The Value of Your Car
Consider the market value of your car. If your car is older and has a low book value, a high excess might not make sense. For example, if your car is worth $4,000 and your excess is $1,000, you’re paying a significant portion of the car’s value in the event of a claim. In such situations, it is important to consider the real-world cost benefits and if a comprehensive policy is the best option.
Compare Quotes and Policy Features
Don’t just focus on the excess amount. Compare different policies from multiple insurers, paying close attention to the coverage offered, exclusions, and other policy features. A slightly higher premium with a more comprehensive policy might be preferable to a lower premium with limited coverage.
Use comparison websites like Compare the Market or Finder to quickly compare quotes from various insurers. Always read the Product Disclosure Statement (PDS) before making a decision.
Long-Term Cost Analysis
Calculate the potential long-term costs of different excess options. For example, if you save $200 per year by opting for a higher excess, how many years would it take for those savings to offset the higher excess payment if you were to make a claim?
Let’s say you save $150 a year by increasing your excess by $500. If you don’t make any claims for 4 years, you would have saved $600 (4 x $150). This means that if you had to make a claim in the 5th year, you would effectively only be paying $100 more than if you had chosen the lower excess option from the start ($500 excess – $600 savings = -$100). If you had to make a claim in the first year, you would effectively pay $350 more than you would if you had chosen the lower excess.
Situations Where You Might Pay Multiple Excesses
It’s important to understand that in some specific situations, you might be required to pay more than your standard excess. This typically happens when multiple excesses apply based on the circumstances of the incident.
Example Scenario
Imagine you have a car insurance policy with the following excesses:
- Standard Excess: $500
- Age Excess (for drivers under 25): $400
Your 22-year-old daughter borrows your car and rear-ends another vehicle, causing significant damage. The total repair cost is $4,000. In this case, you’d likely have to pay both the standard excess and the age excess. Here’s how it breaks down:
- Standard Excess: $500
- Age Excess: $400
- Total Excess Payable: $900
You would pay $900, and the insurance company would cover the remaining $3,100.
Why Multiple Excesses?
Multiple excesses are designed to protect the insurance company from increased risk associated with certain factors, such as inexperienced drivers or specific types of incidents. By adding these excesses, the insurer can manage its risk exposure and keep premiums more affordable for lower-risk drivers.
Case Study: Choosing Between Low and High Excess
Let’s look at two hypothetical individuals, Sarah and David, and their car insurance choices.
Sarah: Prioritizing Budget Certainty
Sarah is a young professional with a limited budget. She drives an older car and primarily uses it for commuting to work. She’s risk-averse and prefers the certainty of knowing her out-of-pocket expenses in the event of an accident.
Sarah opts for a low excess of $300, even though it means paying a slightly higher annual premium. She reasons that she can comfortably afford $300 if she needs to make a claim, but a larger amount would strain her finances.
David: Optimizing for Lower Premiums
David is an experienced driver with a clean driving record. He drives a mid-range car and has a comfortable financial cushion. He’s willing to take on a higher risk to save on his annual insurance premiums.
David chooses a high excess of $800. He estimates that he’s unlikely to make a claim and prefers to save a significant amount on his premium. He also has enough savings to cover the excess if needed.
Outcome
Over a 5-year period, Sarah pays a higher premium but has the peace of mind knowing that her excess is low. David saves money on his premiums but faces a potentially larger out-of-pocket expense if he makes a claim. Ultimately, the best choice depends on their individual circumstances and risk tolerance.
Negotiating Your Excess (Is It Possible?)
While not always possible, there are situations where you might be able to negotiate your car insurance excess. This is most common when you have a long history with an insurer, a flawless driving record, or are bundling multiple policies. Some insurers may offer a one-time reduction in excess as an incentive to retain your business.
Also, it’s worthwhile inquiring about any discounts or promotions that might reduce your overall cost, which effectively balances out your chosen excess level. Some insurers frequently have limited-time offers to new or existing clients. It never hurts to politely ask and see your available options.
Making a Claim and Paying Your Excess
The process of making a claim and paying your excess typically involves the following steps:
Report the incident to the police (if required): If the accident involves injuries, significant property damage, or a dispute about fault, you’ll need to report it to the police. Always follow the law and legal recommendations.
Notify your insurer: Contact your insurer as soon as possible after the incident. They will guide you through the claims process.
Provide information and documentation: You’ll need to provide details about the accident, including the date, time, location, and a description of what happened. You’ll also need to provide your policy number, driver’s license, and any relevant documentation, such as police reports and photos of the damage. It’s very helpful to have photos of all vehicles involved, or any damage from whatever caused the accident.
Assess the damage: Your insurer will assess the damage and provide you with options for repairs. This may involving getting quotes from repair shops, or the insurer arranging their own. This is where you will have to select your choice of repairer.
Pay your excess: Before the repairs can commence or you receive a settlement, you’ll need to pay your excess. This is usually paid directly to the repair shop or the insurer, depending on the arrangement. Review your policy wording and your insurer’s information pages for exact details.
Repairs or settlement: Once your excess is paid, the repairs will be carried out, or you’ll receive a settlement from the insurer, as per your policy conditions.
Pro Tip: Keep detailed records of all communication with your insurer, including dates, times, and names of representatives. This can be helpful if any disputes arise.
The Role of Third-Party Insurance
It’s important to distinguish between different levels of cover. While comprehensive car insurance covers damage to your vehicle regardless of fault, third-party insurance only covers damage you cause to another person’s vehicle or property. It doesn’t cover damage to your own car.
Third-party insurance typically doesn’t have an excess for damage you cause to another’s vehicle or property as it’s a legal liability cover. However, if you have third-party property damage and fire and theft insurance, you will most likely need to pay an excess when claiming for damage to your car caused by fire or theft.
Common Misconceptions About Car Insurance Excess
There are some common misunderstandings about car insurance excess that can lead to confusion. This section will tackle common misconceptions to enable you to make well-informed decisions.
Misconception 1: “I’ll Always Pay the Excess, Even if I’m Not At Fault.”
This isn’t always true. Many policies waive the excess if you’re not at fault in an accident and the other driver is identified and insured. Your insurer will pursue the at-fault driver’s insurer to recover the costs, including your excess.
Misconception 2: “A Lower Excess Is Always Better.”
While a lower excess provides more financial certainty, it comes at the cost of higher premiums. It’s essential to balance the cost of the premium with your willingness to pay a higher excess in the event of a claim.
Misconception 3: “My Excess Is the Only Cost I’ll Pay.”
Unfortunately, this isn’t always the case. Depending on the specific circumstances of the claim, other excesses might apply, such as age excess, inexperienced driver excess, or choice of repairer excess. Always carefully review your policy document.
Misconception 4: “All Insurers Offer the Same Excess Options.”
Excess options and offerings can significantly vary between insurers. Some will provide you with only fixed excess options, and others may allow you to choose the most suitable excess amount. Also, some provide a set range of choices, varying from a low amount to very high amounts. Always compare carefully.
The Future of Car Insurance Excess
The car insurance landscape is constantly evolving. With the rise of telematics, usage-based insurance, and autonomous vehicles, the traditional concept of excess might change in the future. Telematics allows your insurer to monitor your driving behavior (with your consent) and adjust your premiums based on your actual risk. This could lead to personalized excess options tailored to your driving habits.
Tips for Minimizing Your Risk of Accidents
The best way to avoid paying an excess is to minimize your risk of accidents. Here are some actionable tips:
Drive defensively: Be aware of your surroundings, anticipate potential hazards, and maintain a safe following distance.
Avoid distractions: Put away your phone, adjust your music before you start driving, and avoid eating or drinking while behind the wheel.
Maintain your vehicle: Regularly service your car, check your tires, and ensure all lights are working properly.
Drive to the conditions: Adjust your speed and driving style to suit the weather and road conditions. In low light and adverse weather, exercise extra caution.
Avoid driving under the influence: Never drink alcohol or take drugs before driving.
Plan your trips: Allow extra time for your journey so you’re not rushing. Plan rest stops, especially for long trips.
FAQ Section
What happens if the accident wasn’t my fault?
If you’re not at fault in an accident, your insurer will typically waive your excess and pursue the at-fault driver’s insurer to recover the costs. However, this is contingent on identifying the at-fault driver and their insurer.
Can I change my excess amount mid-policy?
In most cases, you can change your excess amount, and change your details mid-policy. Contact your insurer to request a change. Keep in mind that changing your excess will affect your premium, so you’ll receive a revised quote.
What happens if I can’t afford to pay my excess?
If you can’t afford to pay your excess, your insurer will not proceed with your claim. You’ll be responsible for covering the repair costs yourself. If you think you can’t afford the policy excess, it is essential to immediately contact your insurer to work out a resolution.
Is it possible to get car insurance without an excess?
While it is possible, it is rare. In general, these policies offer very limited coverage and come with exceptionally high premiums. It’s rare to find such policies in Australia, and there are usually better options.
How do I find out what my excess is?
Your excess amount is clearly stated on your Certificate of Insurance or policy schedule. You can also find it in your policy document or by contacting your insurer.
Does the excess apply to all types of claims?
In most cases, yes, your excess applies to all types of claims involving damage to your vehicle that are covered by your policy. This includes accident damage, theft and vandalism. However, windscreen damage repairs or replacements sometimes have different excess conditions.
If the cost to repair my car is only slightly higher than the excess amount, should I still make a claim?
This is a judgment call. Factor in whether making a claim will affect your no-claim bonus and potentially increase your premiums in the future. It might be more cost-effective to pay for the repairs yourself. Check your policy details and speak with your insurer for advice.
What if the at-fault driver is uninsured?
If the at-fault driver is uninsured, you may still have to pay your excess unless you have uninsured driver protection as part of your policy. Your insurer may be able to help pursue the driver directly to recover some costs, or will cover the expenses and repairs for damages caused by the uninsured driver, under your insurance policy.
References
- Product Disclosure Statements (PDS) from various Australian car insurance providers.
- Websites: Compare the Market, Finder.
The choice of car insurance excess is one that should be carefully made, and that can profoundly affect how you drive and how you are insured. Don’t leave this important choice to chance. Review your options thoughtfully, compare quotes, and choose a policy and excess level that gives you the right blend of financial security and affordability. Contact your insurance provider or broker to get personalised advice tailored for your unique needs. Take control of the road ahead confidently, knowing you have made an informed and smart decision!
