Increasing your car insurance excess can be a straightforward way to lower your premiums in New Zealand. However, it’s a decision that requires careful consideration of your financial situation and risk tolerance. This guide will walk you through everything you need to know about excess levels, potential savings, and the implications of making a claim.
Understanding Car Insurance Excess in New Zealand
In car insurance, the excess is the amount you agree to pay out of pocket when you make a claim. Think of it as your contribution towards the cost of repairs or replacement. The insurance company covers the remaining balance, up to the policy’s limit. It’s a standard feature of virtually all car insurance policies in New Zealand, operating on the principle that you share some of the financial risk. A higher excess typically translates to a lower premium, and vice versa. This is because you’re taking on more of the financial burden in the event of an accident. However, a lower premium could be offset by needing to pay a larger excess if you need to make a claim.
There are generally two main types of excess in New Zealand car insurance policies: standard excess and voluntary excess. The standard excess is the baseline amount set by the insurer. This is often a few hundred dollars and applies to most claims. The level for the standard excess might depend on, for instance, where you live and park your car because thefts are often higher in many urban areas (Auckland, Christchurch, and Wellington). Voluntary excess is the amount you choose to add on top of the standard excess. For example, if your standard excess is $400 and you choose a voluntary excess of $400, your total excess would be $800. By increasing your voluntary excess, you demonstrate to the insurance company that you’re willing to bear a greater portion of the risk, which usually results in a lower premium.
Why Consider Increasing Your Excess?
The primary reason Kiwis consider increasing their car insurance excess is to reduce their premiums. Insurance companies reward drivers who are willing to take on more financial risk by offering lower monthly or annual payments. If you’re a careful driver with a clean driving record, increasing your excess could be a worthwhile strategy. You might view the potential savings as an investment, putting the difference between the lower premium and the original premium into a savings account to cover the higher excess should you ever need to claim.
Consider a hypothetical scenario: Sarah’s current comprehensive car insurance premium is $1,200 per year with a $400 excess. By increasing her excess to $800, her premium drops to $900 per year. This saves her $300 annually. If Sarah is confident in her driving abilities and only anticipates needing to make a claim in a major accident, she might choose to increase her excess and put those savings into an emergency fund. This way, she’s prepared to pay the higher excess if necessary, while still enjoying the lower premium in the meantime.
Having a higher excess can also encourage more conservative driving habits. Knowing that you’ll have to pay a significant amount out of pocket for any damage might make you more cautious on the road. For instance, you might be less likely to take risks or drive aggressively, ultimately reducing your chances of an accident. Likewise, you are more likely not to submit a claim for minor damages to vehicles. It may serve a greater purpose because submitting minor damages may increase your car insurance premium when you want to either switch providers or renew your current car insurance.
Factors to Consider Before Increasing Your Excess
Before you jump at the chance to lower your car insurance premium by raising your excess, it’s crucial to carefully assess your individual circumstances. One of the most important considerations is your financial situation. Can you comfortably afford to pay the higher excess if you need to make a claim? If you’re on a tight budget or have limited savings, a high excess could put a significant strain on your finances. It’s essential to have enough readily available funds to cover the excess without going into debt.
Consider your driving habits and risk profile. If you’re a relatively new driver, frequently drive in high-traffic areas, or have a history of accidents, you’re statistically more likely to make a claim. In such cases, a lower excess might be more appropriate, even if it means paying a higher premium. On the other hand, if you’re an experienced driver with a clean record who primarily drives on quiet roads, you might feel comfortable with a higher excess.
Another important factor is the value of your car. If you drive an older, less valuable vehicle, the potential savings from a higher excess might not be worth the risk. In the event of an accident, the cost of repairs might be less than the excess, meaning you’d end up paying for everything out of pocket anyway. In some cases, comprehensive car insurance might not even be worth it for older cars—third-party fire and theft cover may suffice. However, think of what your excess would have to be if totalled your car and needed to buy another car worth $5,000.
You should also carefully compare quotes from different insurance providers. Don’t just focus on the premium; pay attention to the excess options, the coverage provided, and the terms and conditions of the policy. Some insurers may offer lower premiums with higher excesses, while others may provide more competitive rates with lower excesses. Take the time to shop around and find the policy that best suits your needs and budget. Comparison websites like Compare Insurance Australia (though primarily Australian) can provide a good overview of how premiums change with different excess levels, giving you a starting point for your research in New Zealand.
Calculating Potential Savings and Risks
To determine whether increasing your excess is financially beneficial, it’s essential to calculate the potential savings and weigh them against the potential risks. Start by obtaining quotes from your current insurer and other providers with different excess levels. Note the annual premium for each excess option. Then, calculate the difference between your current premium and the premium with the higher excess. This will give you an estimate of your annual savings.
Next, consider the potential cost of making a claim. If you increase your excess from $400 to $800, you’ll be responsible for paying an additional $400 out of pocket in the event of an accident. To determine whether this is a worthwhile risk, assess how likely you are to make a claim each year. Look back at your driving history and consider any factors that might increase your risk, such as driving in high-traffic areas or having a long commute on dangerous roads.
Let’s consider another example: Mark’s current car insurance policy has a $500 excess and costs $1,000 per year. He obtains quotes with a $1,000 excess, which would lower his premium to $800 per year. This would save him $200 annually. However, Mark estimates that he has a 10% chance of making a claim each year. If he does make a claim, he’ll have to pay an additional $500. To determine whether increasing the excess is worthwhile, Mark can calculate the expected cost of increasing the excess: 10% chance of a claim x $500 additional excess = $50 expected cost. Since the $50 expected cost is less than the $200 annual savings, Mark might choose to increase his excess. He would want to confirm he can afford that extra $500 if an accident happens.
It’s also important to consider the long-term implications of increasing your excess. While you might save money in the short term, a single accident could wipe out your savings and leave you with a significant out-of-pocket expense. If you’re planning to keep your car for many years, the cumulative savings from a higher excess could be substantial. However, you need to be prepared to pay the higher excess each time you make a claim.
Considering Specific Policy Features and Exclusions
Beyond the standard and voluntary excess, there are often other types of excess that can apply to certain situations or drivers. For example, age-related excess might be applied to drivers under a certain age (usually 25). These excess charges are applied due to that statistical higher risk of accidents for younger motorists. Similarly, some policies may have a driver history excess for drivers with a history of accidents or traffic violations. These types of excess are in addition to your standard and voluntary excess and can significantly increase the amount you need to pay in the event of a claim.
It’s crucial to carefully review the policy wording to understand all the excess that could apply to you. For example, some policies have an additional excess for inexperienced drivers (those with a learner or restricted license) or for drivers who are not listed on the policy. Understanding these excess is essential for making an informed decision about your car insurance coverage. Some policies may also have different excess levels for different types of claims. For example, you might have a lower excess for windscreen repairs than for other types of damage. Be sure to check the product disclosure statement (PDS) to understand all the applicable excess.
Car insurance policies often have exclusions, which are situations in which the policy will not provide coverage. Some common exclusions include driving under the influence of alcohol or drugs, using the car for commercial purposes without the appropriate coverage, or driving without a valid license. If an accident occurs under any of these circumstances, the insurance company may refuse to pay out the claim, leaving you responsible for all the costs. It’s essential to be aware of these exclusions and ensure that you’re complying with the terms of your policy.
For example, if you’re using your car to provide ride-sharing services and you get into an accident, your personal car insurance policy may not cover the damage. You would need to have a commercial car insurance policy to be covered in this situation. Similarly, if you lend your car to a friend who doesn’t have a valid license and they cause an accident, your insurance company may deny the claim.
The Claims Process: What to Expect
If you’re involved in an accident, the first thing you should do is ensure the safety of yourself and others. Check for any injuries and call emergency services if necessary. Once everyone is safe, exchange information with the other driver, including names, addresses, phone numbers, insurance details, and vehicle registration numbers. It’s also a good idea to take photos of the accident scene and any damage to the vehicles involved.
Report the accident to your insurance company as soon as possible. Most insurers have a 24/7 claims hotline or online portal where you can submit a claim. Provide them with all the details of the accident, including the date, time, location, and a description of what happened. Also, provide them with the other driver’s information and any photos or documentation you have.
The insurance company will then investigate the claim to determine who was at fault and the extent of the damage. They may request additional information from you, such as a police report or repair quotes. Once they’ve completed their investigation, they’ll let you know whether your claim has been approved. If your claim is approved, you’ll need to pay your excess before the insurance company covers the remaining cost of repairs or replacement.
If you’re unhappy with the insurance company’s decision, you have the right to appeal the decision. Most insurance companies have an internal dispute resolution process that you can follow. If you’re still not satisfied, you can contact the Insurance & Financial Services Ombudsman (IFSO), which is an independent body that helps resolve disputes between consumers and insurance providers in New Zealand.
Case Studies: Real-Life Examples
Let’s look at some real-life examples of how increasing your excess can impact your car insurance premiums and claims experience:
Case Study 1: David, the Careful Driver – David is a 45-year-old experienced driver with a clean driving record. He lives in a quiet suburb and primarily uses his car for commuting to work. His current car insurance policy has a $400 excess and costs $900 per year. David decides to increase his excess to $800, which lowers his premium to $700 per year, saving him $200 annually. Over five years, David saves $1,000 on his car insurance premiums. He never needs to make a claim during this time, so he benefits from the lower premiums without having to pay the higher excess.
Case Study 2: Lisa, the City Driver – Lisa is a 28-year-old driver who lives in Auckland. She frequently drives in heavy traffic and has had a few minor accidents in the past. Her current car insurance policy has a $400 excess and costs $1,200 per year. Lisa is tempted to increase her excess to $800 to lower her premium, but after careful consideration, she decides against it. She realizes that her risk of getting into an accident is relatively high, and she doesn’t want to be stuck paying the higher excess if she needs to make a claim. A few months later, Lisa is involved in a minor collision. She makes a claim and pays her $400 excess. While her premium might increase at renewal, she’s glad she didn’t increase her excess, as she would have had to pay an additional $400 out of pocket.
Case Study 3: John, the Value-Conscious Owner of an Older Car – John has an old car that is worth only $3,000. John’s comprehensive car insurance policy has a $600 excess, which costs $800 per year. John decides to increase his excess to $1,000 to see if he can lower his premium. His saving amount is not much in the end, lowering the premium only to $700 per year. He decides that he only needs a Third Party Fire and Theft with a $600 excess, which is $400 per year. If his car gets damaged, he’d rather buy another car or use public transportation. If he’s at fault in an accident, Third Party Fire and Theft insurance will help pay for damages to the other driver’s car.
Beyond Excess: Other Ways to Save on Car Insurance
While increasing your excess can be a good way to lower your car insurance premium, there are other strategies you can consider as well. One of the most effective ways to save money is to shop around and compare quotes from different insurance providers. Insurance companies use different formulas to calculate premiums, so you can often find significant differences in price for the same coverage. Use online comparison websites or contact multiple insurers directly to get quotes, and be sure to compare the coverage and terms and conditions of each policy.
You can also bundle your car insurance with other insurance policies, such as home and contents insurance. Many insurers offer discounts to customers who have multiple policies with them. This can be a convenient and cost-effective way to manage your insurance needs.
Maintaining a good driving record is another way to lower your car insurance premium. Insurance companies reward safe drivers with lower rates. Avoid accidents and traffic violations to keep your premium down. Some insurers also offer discounts for taking defensive driving courses.
Finally, consider the type of car you drive. Some cars are more expensive to insure than others. Sports cars, high-performance vehicles, and cars that are frequently stolen tend to have higher premiums. Choosing a more fuel-efficient and safe car can lead to lower insurance costs.
FAQ Section
Q: What happens if the damage is less than my excess?
If the cost of repairs is less than your excess, you’ll have to pay for the entire cost yourself. In this case, it doesn’t make sense to make a claim, as you won’t receive any payout from the insurance company.
Q: Can I change my excess amount at any time?
Yes, you can usually change your excess amount at any time. However, the change will typically take effect at the next renewal date of your policy. Contact your insurance provider to discuss your options and get an updated quote.
Q: What if I can’t afford to pay my excess after an accident?
Unfortunately, you won’t be able to proceed with your claim until you pay your excess. If you can’t afford to pay it, you’ll be responsible for the full cost of repairs or replacement. It’s important to choose an excess amount that you can comfortably afford.
Q: Does my excess apply if the accident wasn’t my fault?
Generally, your excess applies regardless of who was at fault in the accident. However, if the other driver was clearly at fault and they have insurance, your insurance company may be able to recover your excess from their insurer. If they are uninsured, then you still have to pay your car insurance excess.
Q: Are there any situations where I don’t have to pay an excess?
Some insurance policies waive the excess in certain situations, such as for windscreen repairs or for accidents caused by an uninsured driver (if you have uninsured driver cover). Check your policy wording for details.
References List
- Insurance & Financial Services Ombudsman (IFSO)
Ready to take control of your car insurance costs? Get quotes from multiple insurers with varying excess levels and see how much you could save. Remember to weigh the potential savings against your ability to pay the excess in case of an accident. Don’t just focus on the premium—consider the overall value and coverage offered by each policy. A little research can go a long way in finding the right balance between affordability and peace of mind. Start comparing today!
