Car insurance excess can significantly impact your finances after an accident. Choosing the right excess amount involves balancing lower premiums against potentially higher out-of-pocket expenses when you need to claim. This guide explores the unspoken truths about car insurance excess in Australia, helping you make informed decisions to protect yourself financially.
Understanding Car Insurance Excess in Australia
Car insurance excess is the amount you, the policyholder, agree to pay out of pocket when you make a claim. Think of it as your contribution towards the cost of repairs or replacement. It’s a pretty standard feature of most car insurance policies in Australia. However, not everyone truly understands how it works and the implications of their choices. The concept is pretty simple: you nominate an excess amount when you take out the policy. The higher the excess, generally the lower your premium, and vice versa. This is because you’re essentially taking on a larger portion of the risk yourself. Now, where things get tricky is understanding the different types of excess, and how they apply in various situations.
Types of Excess and Their Impact
Not all excess amounts are created equal. There are several types of excess that can apply depending on the specifics of your claim. Understanding these differences is crucial. Commonly offered are standard excess, age excess, inexperienced driver excess, and imposed excess. Let’s break them down one by one.
Standard Excess
This is the most common type of excess. It’s the amount you agree to pay for most claims under your comprehensive car insurance policy. For instance, if you have a standard excess of $500, and you’re in an accident where the repair bill is $5,000, you’ll pay $500, and your insurer covers the remaining $4,500. This sounds straightforward, but it’s the baseline from which other types of excess are calculated. What many people don’t realize is that this “standard” amount can be tailored to fit their budget and risk tolerance. A higher standard excess could significantly reduce your annual premium, but remember, you’ll be paying more if you need to make a claim.
Age Excess
Age excess applies to drivers under a certain age, usually 25. Insurers statistically see younger drivers as riskier, and often impose an additional excess on young drivers. This can range from a few hundred dollars to over a thousand, depending on the insurer and the age of the driver. For example, a policy might have a standard excess of $500, but for a driver aged 21, there could be an additional age excess of $800, bringing the total excess to $1300. This can be a real sting, especially for young drivers who are already facing financial pressures. It’s crucial for young drivers to compare policies carefully, looking not just at the premium, but at the total excess they would be liable to pay.
Inexperienced Driver Excess
Similar to age excess, inexperienced driver excess applies to drivers who haven’t held their full license for a certain period, usually one or two years. This recognises that newly licensed drivers are statistically more likely to be involved in accidents. Like the age excess, an inexperienced driver excess can add a substantial amount to the total excess payable. For example, if the inexperienced driver has had their license for less than a year, they are more likely to pay the imposed excess. Understand the limitations on who can use the car to avoid unnecessary, imposed excess fees.
Imposed Excess
An imposed excess, also known as a special excess, is applied under specific circumstances outlined in your policy. A common instance is when the at-fault driver is not nominated on your policy, but is allowed to drive your car. It can also apply if you have failed to provide the name and address of the other driver involved in an accident. This is to deter policyholders from lending their car to people who aren’t covered, for making false claims, or negligence to comply with their car safety. A policy might impose this excess, potentially adding hundreds or even thousands of dollars to your total excess payment. If you can’t identify the at-fault driver, remember you’re likely to pay an imposed excess.
Understanding Excess Waivers
Some insurance policies offer an excess waiver, meaning that in certain situations, you might not have to pay the excess. These waivers often come with conditions, so it’s important to understand them. One common scenario is an ‘innocent party waiver’. This is where your excess may be waived if the accident was clearly the fault of another driver, their details are known, and their insurance details can be confirmed. In these cases, your insurer will pursue the other driver’s insurer to recover the costs, including your excess. However, its important to be able to establish the other driver was at fault. Another type of waiver to watch out for is for windscreen damage. Some insurers offer excess-free windscreen replacement or repair, which can be a great benefit, given that windscreen damage is a fairly common occurrence. Always check the fine print of your policy to know under what circumstances your excess will be waived.
How to Choose The Right Excess Amount
Selecting the right excess amount is a balancing act between affordability and potential out-of-pocket expenses. There really is no universally “right” answer; it depends entirely on your individual circumstances, driving habits, and financial situation. Consider the following factors:
Your Budget
The most important factor is your budget. How much can you realistically afford to pay if you need to make a claim? Look at your monthly expenses and savings to determine a comfortable excess amount. If you’re on a tight budget, a lower excess might be preferable, even if it means paying a higher premium. The peace of mind knowing you won’t face a huge bill after an accident can be worth the extra cost each month.
Your Driving History
Your driving history is a key indicator of your risk profile. If you have a clean driving record with no accidents or traffic violations, you might be comfortable with a higher excess. Conversely, if you have a history of accidents, a lower excess may be a better choice, as you are statistically more likely to need to make a claim. Remember that speeding fines are considered traffic violations, so even small infringements can impact your risk profile.
Your Car’s Value
The value of your car can also influence your excess decision. If you drive an older, less valuable car, the cost of repairs after an accident might not be significantly higher than your excess. In this case, a higher excess could be a reasonable way to save on premiums. However, if you have a new or expensive car, the repair costs could be substantial, making a lower excess more appealing.
How Often You Drive
How often you drive and the types of roads you frequent can also impact your risk. If you only drive occasionally and mostly on quiet roads, your risk of an accident is likely lower. If you have a 25 minute commute and you drive to the city on a daily basis, opting for a lower excess could be beneficial as you’re more likely to be involved in an accident. However, if you drive long distances on busy highways every day, a lower excess might provide better protection.
Negotiating Your Excess
While not always possible, there may be some room for negotiation when it comes to your excess. This is more likely when you’re taking out a new policy or renewing an existing one. A friendly conversation with the insurance provider may get you the option to play around with the excess amount, even if it’s not explicitly advertised on the website. You might be able to get a slightly lower premium with a slightly higher excess, or vice versa, by simply asking and explaining your situation.
Common Myths about Car Insurance Excess
There are a lot of misconceptions about car insurance excess. Lets bust some usual claims:
Myth 1: Higher Excess Always Means Lower Premiums
While generally true, this isn’t always a linear relationship. There’s a point where increasing your excess further doesn’t significantly reduce your premium. Insurers have algorithms that determine pricing, and the savings from a very high excess might be marginal. It’s worth getting quotes for different excess levels to see how much the premium changes.
Myth 2: You Only Pay Excess if You’re At Fault
This is false. You typically pay the excess regardless of who was at fault, unless you have an excess waiver in place (as discussed earlier). In many cases, even if the other driver was at fault, you still have to pay your excess upfront, and your insurer will then attempt to recover it from the other driver’s insurance company. This process can take time, so you need to be prepared to pay the excess initially.
Myth 3: All Insurers Offer the Same Excess Options
This isn’t true either. Different insurers have different excess structures. Some might offer a wide range of excess options, while others have a more limited selection. It’s essential to compare policies from multiple insurers to find the one that best suits your needs and budget.
Myth 4: Excess Only Applies to Accidents
While accidents are the most common reason for paying an excess, it can also apply to other types of claims, such as theft or vandalism. Check your policy wording to understand what events trigger the excess.
Case Studies: Real-World Excess Scenarios
Lets check out how excess works in the real world with some case studies:
Case Study 1: The Young Driver
Sarah, a 20-year old university student, has just bought her first car. She takes out a comprehensive insurance policy with a standard excess of $600. However, because of her age, an additional age excess of $750 applies, bringing her total excess to $1,350. Three months later, she backs into another car in a parking lot. The damage to both vehicles is minor, but Sarah has to pay the $1,350 excess before insurance covers the rest. Sarah could have chosen a lower excess for a higher premium, but she felt confident in her driving skills and preferred to save money on the upfront cost. This illustrates the trade-off young drivers face when they take out car insurance.
Case Study 2: The Experienced Driver
Mark, a 45 y/o driver with a clean driving record, chooses a higher excess of $1,000 to lower his premium. He figures that because he’s a confident and experienced driver, it’s unlikely he’ll need to make a claim. Five years later, a hailstorm damages his car badly. The repair costs are $6,000. Mark pays the $1,000 excess, and his insurer covers the remaining $5,000. Mark had saved a considerable amount on premiums over those five years. He weighed the risk and came out ahead.
Case Study 3: The Unidentified At-Fault Driver
Lisa returns to her car to find it has been hit in the parking lot, with no note left behind. She has comprehensive insurance with a standard excess of $700. Because she cannot identify the at-fault driver, she is required to pay an imposed excess that is mentioned in her policy, which takes the total excess up to $1,200. This scenario highlights the importance of having uninsured driver protection in your policy, although even with this protection, you’ll likely still have to pay the excess.
Tips for Reducing Your Car Insurance Costs
Beyond adjusting your excess, there are other ways to reduce your car insurance costs:
Shop Around and Compare
The biggest tip is to shop around and compare quotes from multiple insurers. Don’t just stick with the first quote you get. Online comparison websites can be a convenient tool for quickly assessing different policies, but make sure you also get quotes directly from insurers, as some may not be included on these sites.
Increase Your Security
Equipping your car with security features, such as an alarm, immobilizer, or GPS tracking device, can lower your premium. Insurers see these features as reducing the risk of theft, and they often offer discounts accordingly. Always inform your insurer about any security features you have installed on your vehicle.
Bundle Your Insurance Policies
If you have other insurance needs, such as home or contents insurance, bundling your policies with the same insurer can often result in a discount. This is because insurers like to retain customers and reward loyalty.
Pay Annually Instead of Monthly
Paying your premium annually instead of monthly can sometimes save you money. Insurers often charge a small fee for monthly payments to cover the administrative costs. If you can afford to pay annually, it’s worth considering.
Review Your Policy Regularly
Review your policy regularly, at least once a year, to ensure it still meets your needs. Your circumstances may have changed, and you might be able to adjust your coverage or excess to save money. For example, if you’re driving less than you used to, you might be able to reduce your mileage and lower your premium.
The Future of Car Insurance Excess
The car insurance landscape is constantly evolving, with new technologies and trends shaping the future direction. One notable trend is the rise of usage-based insurance, also known as pay-as-you-drive insurance. These policies use telematics to track your driving habits, such as speed, distance, and braking patterns, and adjust your premium accordingly. While excesses may stay the same, what we can expect is that insurers will soon have ways of tracking client’s behaviors to reduce the likelihood of an accident. As technology advances with AI and sensors, these will increasingly become the norm. Usage-based insurance has the potential to offer fairer pricing for low-risk drivers and could potentially lead to more personalized excess options.
FAQ Section
Q: What happens if the damage to my car is less than my excess?
A: If the damage is less than your excess, it usually doesn’t make sense to make a claim. You’ll have to pay the full cost of the repairs yourself. However, it might still be worth getting a quote from a repairer and informing your insurer, as they may have preferred repairers who can do the work at a discounted rate.
Q: Do I have to pay the excess for each claim I make?
A: Yes, you typically have to pay the excess for each separate claim you make. If you have multiple incidents in one claim, you will still need to pay the excess once for that claim.
Q: Can I pay my excess in installments?
A: Some insurers may allow you to pay your excess in installments, but this is not a standard practice. It’s worth asking your insurer if they offer this option, especially if you’re facing financial difficulties.
Q: What if I disagree with the insurer’s assessment of the damage?
A: If you disagree with the insurer’s assessment of the damage or the repair costs, you have the right to get a second opinion from another repairer. You can then present this quote to your insurer and negotiate the claim amount. Usually your insurer should specify which panel beaters you can use.
Q: What if I have multiple drivers on my policy?
A: If you have multiple drivers on your policy, the excess that applies will depend on the age and experience of the driver who was operating the vehicle at the time of the incident. This means that a higher excess could apply if a young or inexperienced driver was behind the wheel.
References List
Insurance Council of Australia
Australian Securities and Investments Commission (ASIC)
CHOICE Australia
Call to Action
Now that you are armed with a deeper understanding of car insurance excess, take control of the driving seat when it comes to making decisions about your insurance. Re-evaluate your current policy. Shop around for quotes from multiple insurers. Understand the different types of excess and how they can impact you. Most importantly, choose an excess amount that you are comfortable with. You’ll thank yourself for it later.
