Choosing the right excess on your car insurance in New Zealand is a delicate balance. It’s about weighing lower premiums against potentially higher out-of-pocket costs if you need to make a claim. Understanding how excess works, the different types available, and considering your financial situation are vital steps to making an informed decision.
Understanding Car Insurance Excess in New Zealand
Excess, in simple terms, is the amount you agree to pay out of pocket when you make a car insurance claim. The insurer covers the remaining cost, up to the policy’s limit. It’s a fundamental part of most car insurance policies in New Zealand, and understanding its implications is crucial.
Why does excess exist? Think of it as a shared risk. By having an excess, you take on a small portion of the risk, which helps keep insurance premiums lower overall. It also discourages drivers from making small, trivial claims that could burden the system. Insurers would have to process numerous low-value claims, increasing their administrative costs, which would ultimately translate to higher premiums for everyone.
The excess amount can vary significantly, typically ranging from $0 all the way up to $2,500 or even higher, depending on the insurer and the specific policy. Generally, a higher excess means lower premiums, and a lower excess (or no excess) results in higher premiums.
Types of Excess and Their Implications
While the core concept of excess remains consistent, different types can apply in specific situations. Recognizing these variations is essential for avoiding surprises when you need to claim.
Standard Excess
This is the most common type of excess, applicable in most claim scenarios. If you are at fault in an accident, or if your car is damaged and you can’t identify the at-fault party, the standard excess will apply. Let’s say your standard excess is $500. If you cause an accident resulting in $5,000 worth of damage to your car, you’ll pay $500, and the insurer will cover the remaining $4,500.
Additional Excesses
Insurers often apply additional excesses to specific drivers or circumstances. The most common include:
Age-Related Excess: This applies if the driver at the time of the incident is under a certain age, usually 25. Young drivers are statistically more likely to be involved in accidents, so insurers mitigate this risk by applying an additional excess. For instance, if you lend your car to a friend who is 22, and they have an accident, you might have to pay the standard excess plus an additional age-related excess.
Inexperienced Driver Excess: Similar to age-related excess, this applies to drivers who have held their license for less than a specific period, typically one or two years. The rationale is that less experienced drivers present a higher risk of accidents.
Voluntary Excess: This is an excess amount you choose to increase beyond the standard excess. By opting for a higher voluntary excess, you can lower your premiums even further. However, it’s crucial to ensure you can comfortably afford this higher excess should you need to claim.
Nil Excess
Some policies offer a “nil excess” option, meaning you won’t have to pay anything towards a claim. This invariably comes at a higher premium but can provide peace of mind, especially if you are risk-averse or concerned about unexpected expenses. Some insurers may offer a nil excess for specific situations, such as windscreen repairs.
Third-Party Claims and Excess
One often-misunderstood aspect is excess in third-party claims. If another driver is clearly at fault for the accident and is insured, your insurer will typically pursue their insurance company to recover the costs of the damage to your car. In this case, you generally won’t have to pay your excess. However, this process can take time, and you may need to pay your excess upfront initially. Once your insurer recovers the costs from the other party’s insurer, they should refund your excess. But this relies on the other party being insured and admitting fault. If the other driver is uninsured or disputes liability, the process becomes more complex, and you may have to claim under your own policy and pay your excess.
Factors to Consider When Choosing Your Excess
Selecting the right excess is a personal decision, guided by your individual circumstances and risk tolerance. Several factors should influence your choice.
Your Financial Situation
This is the most important factor. Can you comfortably afford to pay the excess amount you choose if you need to make a claim? Consider your monthly budget and available savings. If you are on a tight budget, a higher excess might seem attractive due to the lower premiums, but it could leave you financially vulnerable if you have an accident. Conversely, if you have ample savings, a lower excess, even with higher premiums, provides greater financial security.
Your Driving History
If you have a clean driving record with no accidents or traffic offenses, you might be comfortable with a higher excess. Your history suggests you are a lower-risk driver, making the chances of needing to claim less frequent, making the possibility of higher excess being paid less.
The Value of Your Car
For older, less valuable cars, a very low excess might not be worthwhile. The difference in premium between a low excess and a high excess could be substantial, and if your car is only worth a few thousand dollars, the potential payout from a claim might not justify the higher premiums. In this case, a higher excess might be a more economical choice. On the other hand, for newer more expensive cars, opting for a lower excess might make sense to protect your potentially larger investment.
Security and Parking
Where you regularly park your car is also a factor. If you park in a secure garage or well-lit area, the risk of theft or damage is lower than if you park on a busy street. This may also influence if you feel you want to increase your excess.
The Trade-off Between Premium and Excess: A Practical Example
Let’s illustrate the premium-excess trade-off with a practical example. Imagine you are insuring a Toyota Corolla and receive two quotes:
Quote 1: Premium = $800 per year, Excess = $400
Quote 2: Premium = $600 per year, Excess = $800
In this scenario, choosing Quote 2 saves you $200 per year on your premium. However, if you need to make a claim, you’ll have to pay an extra $400 in excess ($800 – $400). To break even on premium savings, you’d need to go 2 consecutive years, and only if during the year you do not need to make a claim at all, until needing to make a claim.
Therefore, you need to consider the probabilities. Are you confident you won’t need to make a claim for potentially two years? If so, opting for the higher excess (Quote 2) could be a good choice. However, if you are concerned about a claim in the near future or prefer the peace of mind of a lower excess, Quote 1 might be more suitable.
Comparing Car Insurance Policies and Excess Options
Never settle for the first car insurance quote you receive. Comparing policies from different insurers is crucial to finding the best deal and the most appropriate excess level for your needs. Here’s a step-by-step approach to comparing policies effectively:
Gather Multiple Quotes
Start by obtaining quotes from at least three to five different insurers. You can use online comparison websites to get a quick overview of available options, but always verify the accuracy of the information with the insurers directly. Some popular comparison sites in New Zealand include Money.co.nz.
Compare Coverage Details
Don’t focus solely on the price. Carefully examine the coverage details of each policy, including:
Third-Party Liability: What is the maximum amount covered if you damage someone else’s property or injure them?
Accidental Damage: Does the policy cover accidental damage to your car, even if you are at fault?
Theft and Vandalism: Is your car covered against theft and vandalism?
Natural Disasters: Does the policy cover damage caused by natural disasters like floods or earthquakes?
Windscreen Cover: Are windscreen repairs or replacements covered, and is there a separate excess for this?
Towing Costs: Does the policy cover towing costs if your car is undrivable after an accident?
Rental Car: Does the policy offer a rental car while your car is being repaired?
Assess Excess Options
Once you have a good understanding of the coverage details, compare the excess options offered by each insurer. Pay close attention to the standard excess and any additional excesses that may apply. Ask yourself:
What is the standard excess amount?
Are there additional excesses for young or inexperienced drivers?
Can I choose a higher voluntary excess to lower my premium?
Is there a nil excess option available?
Read the Policy Wording Carefully
Before making a final decision, carefully read the policy wording document. This document contains all the terms and conditions of the policy, including any exclusions or limitations. Pay particular attention to the sections related to excess, claims procedures, and dispute resolution.
Consider the Insurer’s Reputation
Finally, factor in the insurer’s reputation and customer service record. Check online reviews and ratings to see what other customers say about their experiences with the insurer, particularly regarding claims handling. A cheaper policy is no good if the customer service is poor and the claims process is overly complicated and time consuming.
Case Studies: Real-World Examples of Excess Choices
To further illustrate the importance of choosing the right excess, let’s examine two case studies based on hypothetical situations.
Case Study 1: Sarah, a Young Driver
Sarah is a 20-year-old student who has been driving for two years. She drives a relatively old car worth around $6,000. She received two car insurance quotes:
Quote A: Premium = $1,200 per year, Standard Excess = $400, Age-Related Excess = $600
Quote B: Premium = $900 per year, Standard Excess = $800, Age-Related Excess = $600
Quote B seems attractive because it offers a lower premium, in this case $300 saved. However, Sarah needs to consider the age-related excess of $600, and the potentially higher standard excess, in case her age-related excess is not applied. If Sarah is at fault in an accident, her total excess would be $1,400 ($800 standard excess + $600 age-related excess) under Quote B, compared to only $1,000 total excess ($400 standard excess + $600 age-related excess) under Quote A. Additionally if the car she drives is only worth $6,000. It may not be worth that significant an excess if something was to happen to it.
Given her age and inexperience, Sarah might be statistically more likely to be involved in an accident. Therefore, the extra savings is not worth the much higher total excess she would have to encounter. This makes Quote A the more sensible choice despite the higher premium. It offers greater financial protection and peace of mind.
Case Study 2: John, an Experienced Driver
John is a 50-year-old professional with a clean driving record spanning 30 years. He drives a relatively new car and parks it in a secure garage. He receives the following quotes:
Quote X: Premium = $1,000 per year, Excess = $400
Quote Y: Premium = $800 per year, Excess = $800
John is in a different situation compared to Sarah. He has a long history of safe driving and parks his car securely, reducing the likelihood of accidents or theft. The difference between choosing Quote X is $200 per year, with $400 difference in the total excess. If wanting to break even from the total cost spent on premium only, this will occur in the space of 2 years, provided he does not need to make a claim during that period. With this in mind, the lower premium and higher excess could be a sensible option. If an accident does occur, provided John is ok financially to pay the higher excess, it would not be a financial hindrance.
Common Mistakes to Avoid When Choosing Car Insurance Excess
Choosing the right excess level is crucial, and it’s easy to fall into common traps. Here are some mistakes to avoid to make the best decision for your situation:
Focusing Solely on the Premium
As discussed earlier, the premium is important, but it shouldn’t be the only deciding factor. Prioritizing the lowest premium without considering the excess amount and coverage details can lead to unpleasant surprises when you need to claim. A cheap policy with a high excess might seem attractive initially, but it could leave you financially exposed if you have an accident.
Ignoring Additional Excesses
Many drivers overlook additional excesses, such as those for young or inexperienced drivers. It is important to determine if these apply to you or any other driver who might use your car. Failing to account for these additional costs can result in a much higher excess payment than expected, so ensure you know precisely what your total excess will be in any given situation.
Underestimating Your Risk Tolerance
Be honest with yourself about your risk tolerance. Some people are naturally risk-averse and prefer the peace of mind of knowing they won’t have to pay a large excess, even if it means paying a higher premium. Others are more comfortable taking risks and are willing to accept a higher excess in exchange for lower premiums. Choose an excess level that aligns with your personal risk tolerance and financial situation.
Not Reviewing Your Policy Regularly
Your circumstances can change over time. Your income might increase, you might move to a different location, or your driving habits might change. It’s essential to review your car insurance policy annually, at least, to ensure it still meets your needs. If your circumstances have changed, you might want to adjust your excess level accordingly. Reviewing your policy enables you to find new deals available while ensuring the excess still suits your current situation.
The Claims Process and Excess Payment
Knowing what to expect when making a claim is essential. Understanding the claims process and how excess payment works can help you navigate the situation smoothly.
Reporting the Incident
After an accident, your first priority is to ensure everyone is safe and call emergency services if needed. Once the situation is under control, gather as much information as possible, including the other driver’s details, vehicle registration number, and insurance information. Take photos of the damage to all vehicles involved and any relevant details of the scene.
Report the incident to your insurance company as soon as possible. Most insurers have a 24/7 claims hotline or an online claims portal. Provide them with all the information you have gathered, and be honest and accurate in your description of the events.
The Assessment and Repair Process
Once you have reported the claim, your insurer will assess the damage to your car. They may send an assessor to inspect the vehicle or ask you to take it to a repair shop for a quote. If the damage is covered by your policy, the insurer will authorize the repairs. You can usually choose your own repair shop, but it’s often recommended to use one that is approved by the insurer, as they typically have established relationships and quality standards.
Paying the Excess
You will typically need to pay your excess to the repair shop before they release your car. The repair shop will then invoice the insurer for the remaining repair costs, up to the policy limit. In some cases, the insurer may deduct the excess amount from the final claim payment before paying the repair shop directly. If the insurer is successful in recovering the costs from a third party, your excess will generally be refunded.
What Happens if Your Car is Written Off?
If the damage to your car is so severe that it’s uneconomical to repair, the insurer may declare it a “write-off.” In this case, they will pay you the market value of the car, less your excess. Ensure you are happy with the market value the insurer has determined. It might be worth checking TradeMe motors as well to determine the typical sale price of your car. Once again, if the insurer is successful in recovering costs third party, the excess will generally get refunded to you.
Negotiating Your Excess
You may be able to negotiate your excess with your insurer. Here are some strategies to use:
If your circumstances change: If your financial situation has changed, you may be able to negotiate a lower excess.
If you have a good driving record: If you have a good driving record, you may be able to negotiate a lower excess.
If you are a member of a club or association: Some insurers offer discounts to members of certain clubs or associations. If you are a member of one of these clubs or associations, you may be able to negotiate a lower excess.
If you are willing to pay a higher premium: If you are willing to pay a higher premium, you may be able to negotiate a lower excess.
Ensure any negotiation is done with the insurer ahead of an incident so they can officially make note of any changes.
Special Considerations for High-Performance Vehicles
Insuring high-performance vehicles requires special attention because these cars typically attract higher insurance premiums due to their increased risk of accidents and theft. When choosing an excess for a high-performance vehicle, consider these points:
Higher Premiums: Expect to pay higher premiums than for a standard vehicle. High-performance vehicles are statistically more likely to be involved in accidents due to their power and speed, and they are also more attractive to thieves.
Specialist Insurers: Look for insurers that specialize in high-performance vehicles. These insurers will better understand the risks associated with these cars, and they will be able to offer more appropriate coverage and pricing.
Increased Excess Options: Insurers may offer a wider range of excess options for high-performance vehicles, allowing you to customize your policy to suit your specific needs and budget.
Security Measures: Installing security measures, such as alarms, immobilizers, and tracking devices, can help reduce your premiums and make your car less attractive to thieves.
Make sure you get the extras insured as well, for example new wheels, etc, as they may not be covered under a standard policy.
FAQ Section
What happens if someone else is driving my car and has an accident?
Generally, your insurance policy will cover the accident, even if someone else is driving your car, provided they have your permission and hold a valid driver’s license. However, additional excesses may apply if the driver is under a certain age or has less driving experience.
Can I change my excess amount after taking out a policy?
Yes, in most cases, you can change your excess amount after taking out a policy. Contact your insurer to discuss your options and obtain a revised quote. Keep in mind that changing your excess will affect your premium.
What if I can’t afford to pay my excess after an accident?
This is a serious situation that can have significant consequences. If you can’t afford to pay your excess, the insurer may refuse to pay for the repairs to your vehicle. In some cases, they may even cancel your policy. If you are struggling to afford your excess, contact your insurer as soon as possible to discuss your options. They may be willing to offer a payment plan or work with you to find a solution. If nothing else, it is certainly a reason to get a lower excess to give you security against future claims that will require payment from yourself of any excess required.
Does my excess apply if someone hits my car while it’s parked?
It depends. If the other driver is identified and admits fault, their insurance company will likely cover the damage to your car, and you won’t have to pay your excess. However, if the other driver is uninsured or cannot be identified (e.g., in a hit-and-run), you will need to claim under your own policy, and your excess will apply.
Is it possible to get car insurance without any excess at all?
Yes, as outlined earlier, some insurers offer policies with a “nil excess.” However, these policies typically come with higher premiums. Carefully weigh the cost of the higher premium against the peace of mind of knowing you won’t have to pay any excess in the event of a claim.
References
- Money.co.nz. Car Insurance.
- TradeMe Motors. Listings for Vehicles.
Choosing the right excess for your car insurance is about more than just finding the cheapest premium. It’s about understanding your financial situation, assessing your risk tolerance, and making an informed decision that provides you with peace of mind without putting undue strain on your wallet. Armed with the knowledge and insights provided in this article, you’re well-equipped to navigate the world of excess and select the option that best protects you on New Zealand roads. Take action today: compare car insurance quotes, carefully consider your options, and choose a policy that suits your needs and circumstances. Don’t wait until after an accident to realize you’ve made the wrong choice. A little bit of upfront effort can save you a lot of money and hassle down the road.
