Understanding car insurance excess is crucial in New Zealand. It’s the amount you pay out of pocket when you make a claim. Choosing the right excess can significantly impact your premium and financial responsibility in case of an accident. This guide provides a comprehensive overview to help you make informed decisions about your car insurance excess.
What is Car Insurance Excess?
Car insurance excess, in its simplest form, is the amount you agree to pay towards a claim before your insurance company covers the remaining costs. Think of it as your contribution towards the repair or replacement of your vehicle. It’s a standard feature in virtually all car insurance policies in New Zealand. The excess amount is stated in your policy documents, so it’s essential to know what it is. If the total claim amount is less than your excess, the insurer won’t pay anything, and you’ll cover the entire cost yourself. For example, if your excess is $500 and the repair bill is $400, you pay the $400. However, if the repair bill is $1000, you pay $500, and the insurance covers the remaining $500.
Types of Excess in New Zealand Car Insurance
While the basic concept of excess remains the same, there are different types of excess applicable in specific situations in New Zealand. Understanding these variations is crucial to avoid unexpected costs during a claim.
Standard Excess
The standard excess is the most common type. This is the amount you’ve agreed to pay upfront for any claim under your policy. For instance, if your standard excess is $400, you will pay $400 irrespective of whether the incident involves another driver or is a single-vehicle accident where you are at fault.
Additional Excesses
In addition to the standard excess, insurers in New Zealand often apply additional excesses based on specific circumstances. These might apply to inexperienced drivers or those with a history of accidents.
Age Excess
An age excess is typically applied to drivers under a certain age, usually 25 or sometimes even 30. This is because younger drivers are statistically more likely to be involved in accidents. According to Ministry of Transport data, young drivers in New Zealand are over-represented in crash statistics. This additional excess can significantly increase the amount you pay when making a claim. For example, if your standard excess is $400, and you are under 25 with an age excess of $300, you will pay a total of $700 excess when claiming after an accident.
Inexperienced Driver Excess
Some insurers also apply an additional excess for drivers with a limited driving experience, regardless of their age. This recognises that new drivers are more prone to errors on the road. The period defining ‘inexperienced’ varies among insurers; it could be one year or three years after obtaining your full driver’s license. This excess, in addition to your standard policy excess and/or age excess, may need to be paid if you’re claiming under the policy. Always check the policy wording to see the full definition of who is considered inexperienced.
Voluntary Excess
A voluntary excess is an additional amount you choose to add on top of your standard excess. By opting for a higher voluntary excess, you generally receive a discount on your insurance premium. This works because you’re effectively taking on a greater portion of the financial risk. This can be an ideal option if you are a careful driver and want to save money on your premium. It is still important to ensure you can afford your total excess. If your standard excess is $400 and you choose a voluntary excess of $300, the total excess you will pay in the event of a claim increases to $700. If you make a claim, you’ll pay both the standard and voluntary excess, resulting in a lower premium overall.
‘No Excess’ Options
Some insurance policies offer a “no excess” option, where you don’t pay any excess in the event of a claim. However, these policies typically come with higher premiums to compensate for the insurer taking on all the initial risk. A no excess policy might be suitable for those who want complete peace of mind and are willing to pay more upfront but do not want any surprise costs when claiming.
How Does Car Insurance Excess Work in Practice?
Understanding how car insurance excess functions within the claims process is crucial. Here’s a practical breakdown:
- Incident Occurs: First, an accident or incident happens that causes damage to your vehicle.
- Reporting the Incident: You report the incident to your insurance company as soon as possible. Provide them with all the necessary details, including the date, time, location, and description of the event.
- Assessment of Damage: The insurance company evaluates the damage and determines the cost of repairs. They may send an assessor to inspect the vehicle or ask you to provide quotes from approved repairers.
- Excess Payment: If your claim is approved, you pay the agreed-upon excess amount to the repairer (or sometimes directly to the insurance company). The repairer will typically ask for payment before commencing work on the car.
- Insurance Covers the Rest: Once your excess is paid, your insurance company covers the remaining cost of the repairs or replacement, up to the policy’s limit.
Example Scenario
Let’s illustrate this with an example. Suppose you are involved in a minor collision, resulting in $3,000 worth of damage to your car. Your insurance policy has a standard excess of $500. Upon claim approval, you pay $500 to the repairer, and the insurance company covers the remaining $2,500.
Factors Affecting Your Car Insurance Excess
Several factors can influence the excess amount you choose and the subsequent impact on your insurance premium. Understanding these can assist you in making the best decision for your specific needs.
Driving History
Your driving history is a primary factor. If you have a clean driving record with no prior accidents or traffic violations, you are often eligible for lower premiums and may be comfortable with a higher excess. Conversely, if you have a history of accidents or traffic offenses, insurers may charge higher premiums and insist on a lower excess, or impose additional excesses.
Age and Experience
As previously mentioned, younger and less experienced drivers usually face higher premiums and may be required to pay additional excesses. This is due to the higher statistical likelihood of accidents within these demographics. Insurers mitigate their risk by increasing the financial responsibility for less experienced drivers.
Vehicle Type and Value
The type and value of your car also factor into the equation. Luxury or high-performance vehicles are generally more expensive to repair or replace, leading to higher premiums. You might choose a higher excess to offset this cost, but remember the financial burden you will shoulder should an incident occur.
Policy Type
The type of insurance policy you choose (e.g., comprehensive, third-party fire and theft, or third-party only) will affect your premium. Comprehensive policies generally provide the most extensive coverage and usually carry a higher premium than third-party policies. Your choice will ultimately impact the range of excess options available to you.
Choosing the Right Car Insurance Excess: Key Considerations
Selecting the right car insurance excess involves balancing the cost of your premium with your ability to pay in the event of a claim. Here are essential considerations to guide your decision:
Assess Your Financial Situation
Evaluate your disposable income and savings. How much can you comfortably afford to pay out of pocket if you need to make a claim? It is a good idea to have this amount readily available. Selecting an excess amount that stretches your financial capacity might save you money on premiums now but create stress later if an incident occurs.
Consider Your Driving Habits
Reflect on your driving habits and the types of roads you frequently use. If you drive defensively, have a short commute, and mainly travel on well-maintained roads, you might consider a higher excess to lower your premium. On the other hand, if you drive in high-traffic areas, drive frequently, or are prone to minor accidents, a lower excess might be a safer option.
Compare Quotes from Multiple Insurers
Always get quotes from multiple insurance companies before making a decision. Each insurer has different pricing models and excess options. A comparison across several insurers might reveal significant differences in premiums and excesses, giving you more flexibility. Comparison sites like Compare Insurance can be a good starting point, but always visit the individual insurer’s websites as well.
Read the Policy Wording Carefully
Before committing to a policy, carefully read the policy wording, including the fine print. Make sure you fully understand the terms and conditions, especially regarding excesses, exclusions, and claims procedures. Pay particular attention to the specific situations in which additional excesses might apply.
Think Long-Term
Consider your long-term needs and goals. While saving money on your premium is enticing, think about the potential financial implications if you need to make multiple claims within a short period, which may be possible if you have opted for a high voluntary excess. A slightly higher premium might be preferable to the burden of multiple high excess payments.
Tips for Lowering Your Car Insurance Premium in New Zealand
Besides adjusting your excess, several other strategies can help reduce your car insurance premium in New Zealand:
Increase Security
Installing security features, such as an alarm system, immobiliser, or tracking device and parking your vehicle in a garage can demonstrate to insurers you are actively reducing the risk of theft or damage and help decrease the price of the premium.
Combine Policies
Bundling your car insurance with other insurance policies (e.g., home and contents insurance) with the same insurer can often result in a discount. Insurance companies appreciate the increased business and may offer a reduced overall premium.
Pay Annually
Paying your premium annually rather than monthly can sometimes result in savings. Insurers often apply a small surcharge to monthly payments to account for administrative costs
Review Your Coverage Regularly
Periodically review your insurance needs and coverage. As your circumstances change (e.g., you move to a safer neighborhood, sell a car), you may be able to adjust your coverage levels and lower your premium. It’s essential to ensure you’re not paying for coverage you no longer need.
Consider Third-Party Insurance
If your car is of low value, consider third-party insurance. This type of cover only pays if you damage someone else’s car or property, and doesn’t cover costs to repair your own car. Third party insurance is generally cheaper than comprehensive insurance.
Drive Carefully
Maintain a safe driving record. Avoiding accidents and traffic violations not only keeps you and others safe but also helps keep your insurance premiums low.
Common Mistakes to Avoid When Choosing Car Insurance Excess
It is essential to be aware of common mistakes when selecting your car insurance excess to avoid unpleasant surprises later.
Choosing an Excess You Can’t Afford
The primary mistake is opting for a high excess simply to lower the premium, without realistically assessing your ability to pay that amount if you need to make a claim. A high excess that you can’t afford defeats the purpose of having insurance.
Not Understanding Additional Excesses
Failing to understand the policy wording regarding additional excesses is another common pitfall. You may be surprised by the total excess amount you’re required to pay if you are a young or inexperienced driver, or if other specific conditions apply.
Ignoring the Claims Process
Ignoring or misunderstanding the claims process can cause unnecessary stress and delays. Familiarize yourself with the steps involved in making a claim and the documentation required. Know your obligations and the insurer’s responsibilities.
Not Comparing Insurers
Relying on a single quote or automatically renewing with the same insurer without shopping around is a missed opportunity. Insurance prices can vary significantly, so obtaining quotes from multiple insurers and comparing coverage options is essential.
Overlooking Exclusions
Failing to read the policy exclusions can lead to disappointment when you discover that your policy doesn’t cover a particular type of damage or incident. Understand what is covered and what is not, and consider whether you need additional coverage.
Case Studies: Real-World Examples of Excess in Action
Examining real-world scenarios can provide a clearer understanding of how excess operates in different situations.
Case Study 1: Young Driver Accident
Sarah, a 20-year-old student, has a car insurance policy with a standard excess of $400 and an age excess of $300. She’s involved in a minor accident, causing $2,000 worth of damage to her car. In this case, Sarah pays a total excess of $700 ($400 standard + $300 age), and the insurance company covers the remaining $1,300.
Case Study 2: Voluntary Excess Savings
John, a careful driver, opts for a voluntary excess of $500 on top of his standard $400 excess, bringing his total excess to $900. This reduces his annual premium by $150. Over five years, he saves $750 in premiums. However, he recognises he will have to pay a $900 excess if he makes a possible claim.
Case Study 3: No-Fault Claim
Maria is driving when another car rear-ends her at a red light. The other driver is clearly at fault, and their insurance covers the damage to Maria’s car. While it depends on her insurer, Maria typically does not have to pay any excess on her claim. Some insurers require excess to be paid in all claims, then reimburse the excess should the other party be liable. If Maria has a “no excess” policy, she won’t have to pay an excess, regardless of fault. It’s important to note that “no excess” options typically come with higher premiums.
FAQ Section
What happens if the cost of repairs is less than my excess?
If the cost of repairs is less than your excess, you will have to cover the entire cost out of your own pocket. The insurance company will not pay anything, as the claim amount is below your excess amount.
Can I change my excess amount during my policy term?
Yes, you may be able to change your excess amount during your policy term, but this will likely affect your premium. Contact your insurance company to discuss your options and receive a revised quote.
Do I have to pay an excess if the accident wasn’t my fault?
While policies and insurers differ, you may need to pay excess if the claim is under your policy. You can attempt to recover the costs, including your excess, from the at-fault driver, or claim against their insurer. Some insurers will waive the excess if the other driver is identified and admits fault, or if you can provide their insurance details. “No excess” policies will not require any excess to be paid, regardless of fault.
Is it better to have a higher or lower excess?
The better option depends on your individual circumstances and financial situation. Consider your risk tolerance, driving habits, and ability to pay out of pocket if you need to make a claim. A lower excess will result in higher premiums, but greater peace of mind, while a higher excess will lower premiums but increase your financial risk.
Are there any situations where I don’t have to pay an excess?
Yes, in some situations, such as if you have a “no excess” policy, the other driver is clearly at fault and insured, or certain events covered under your policy specifically waive the excess. The specifics vary depending on your insurer and policy wording.
References
Ministry of Transport, New Zealand road crash statistics
Compare Insurance, comparative services New Zealand.
Choosing the right car insurance excess in New Zealand requires careful consideration of your individual circumstances, driving habits, and financial situation. By understanding the different types of excess, factors that influence premium costs, and common pitfalls to avoid, you can make an informed decision that provides the right balance of coverage and affordability. Don’t leave this to chance; compare policies, understand the fine print, and ensure you’re adequately protected on New Zealand roads. Get a quote today, and drive with confidence knowing you’re covered.
