Understanding and managing your car insurance excess is crucial for minimizing costs in New Zealand. The excess is the amount you pay out-of-pocket when you make a claim, and choosing the right level can significantly affect your premiums. This article unpacks the ins and outs of car insurance excess in NZ, providing actionable tips to help you make informed decisions and save money without compromising on coverage.
What is Car Insurance Excess?
Think of your car insurance excess as your contribution towards any claim you make. It’s the amount you agree to pay upfront, and the insurance company covers the remaining cost of the repairs or replacement, depending on your policy’s terms. In New Zealand, car insurance policies typically offer a range of excess options, allowing you to tailor your premium based on your risk appetite. Some policies may offer multiple excess options depending on the nature of specific incidents.
Types of Excess in New Zealand Car Insurance
While a standard excess is common, understanding the different types can help you navigate the complexities of car insurance. Common types you may encounter in NZ include:
Standard Excess: This is the most common type, applicable to most claims.
Age Excess: Often applied to younger drivers (e.g., under 25), reflecting their higher perceived risk. This will usually be in addition to your selected Standard Excess.
Inexperienced Driver Excess: Similar to age excess, it may apply to drivers with only a few years of driving experience. This, too, is usually in addition to the standard excess.
Voluntary Excess: This is the additional excess you choose to add on top of your standard excess to lower your premiums. Choosing a higher voluntary excess means you pay more if you make a claim, but your overall insurance cost will be lower.
Other Driver Excess: Applies if the person driving your car at the time of the incident isn’t specified as a named driver on your policy.
It’s important to read your policy document carefully because excess rules can vary between insurers. One provider might apply a higher age excess than another, or they might have different rules about when an inexperienced driver excess applies. Understanding these nuances can prevent unwelcome surprises if you ever need to make a claim.
How Your Excess Choice Impacts Your Premium
The relationship between excess and premium is inversely proportional: higher the excess, lower the premium, and vice versa. This is because by opting for a higher excess, you’re essentially agreeing to shoulder a larger portion of the financial burden in the event of an accident. This reduces the insurer’s risk, and they reward you with a lower premium. The difference in premium cost can be substantial. For example, increasing your excess from $400 to $800 could lower your premium by $50 – $150 per year depending on multiple external factors.
Choosing the Right Excess Level: A Practical Guide
Selecting the ‘right’ excess isn’t a one-size-fits-all situation. It depends on your individual circumstances, financial situation and risk tolerance.
Assess Your Financial Situation: Can you comfortably afford to pay the chosen excess if you have to make a claim tomorrow? It’s crucial to have the funds readily available or accessible. Consider the potential impact on your budget if you suddenly need to pay your car insurance excess alongside repair costs. If you’re on a tight budget, a lower excess might be a better option, even if it means paying slightly more in premiums.
Evaluate Your Driving History: If you’re a safe driver with a clean driving record, you might be comfortable with a higher excess because the likelihood of making a claim is lower. Conversely, if you’ve had accidents in the past, a lower excess might be a safer choice.
Consider the Value of Your Car: If you’re driving an older, less valuable car, it might not make sense to have a very low excess, as the cost of the premium might outweigh the potential benefits. In some cases, the cost of repairs, even after paying the excess, could be close to the market value of the car, making it more economical to simply replace the vehicle.
Think About Frequency of Use: Do you only drive short distances and only a couple of times a week? The risk is low that you may need to consider a high excess; or do you drive long distances, during peak hours in highly congested areas? If so, you may need to opt for a lower excess option.
Weigh the risk of an accident vs. potential cash outflow: Calculate the difference in premium between a low excess and a higher excess. If the difference is not big, and you may have the potential to make an accident over the policy period, you might be better off paying for a lower excess.
Compare Quotes: Use online comparison tools such as CompareInsurance.com.au or MoneyCompare.co.nz to compare car insurance quotes from different providers with varying excess levels. This will give you a clear picture of how your excess choice affects your premium and help you find the best deal.
Read The Fine Print: Always, always read the Product Disclosure Statement (PDS) before making a decision. This document outlines the terms and conditions of the policy, including details about the excess, exclusions, and claims process. Pay close attention to any specific situations where a different or additional excess might apply.
Real-World Examples: Excess in Action
Let’s consider a few scenarios to illustrate how the excess works in practice:
Scenario 1: Minor Accident. John backs his car into a pole, causing $800 worth of damage. His policy has a standard excess of $400. John pays the $400 excess, and the insurance company covers the remaining $400.
Scenario 2: Major Accident. Sarah is involved in a collision, resulting in $5,000 worth of damage. Her policy has a standard excess of $500. Sarah pays the $500 excess, and the insurance company covers the remaining $4,500.
Scenario 3: Age Excess. Michael, aged 20, causes an accident resulting in $2,000 damage. His Standard Excess is $400, and his Age Excess is $600. He pays a total of $1,000, ($400 + $600) and the insurance will cover the remaining $1,000.
Scenario 4: Not At Fault: Emily has comprehensive car insurance with a $500 excess. She is rear-ended by another driver who admits fault. Her insurance company pursue the at-fault driver’s insurance who pay for all damages. In this situation, Emily might not need to pay any excess.
These examples highlight the importance of understanding your policy’s excess and how it applies in different situations. It’s also important to check whether your insurer has a ‘no excess if not at fault’ clause. This clause waives your excess if you can identify the at-fault party and their insurance company is willing to pay for repair damages. However, not all insurers provide this feature, so it pays to check!
Other Ways to Reduce Car Insurance Costs in NZ (Besides Excess)
While choosing the right excess is a key strategy for minimizing car insurance costs, it’s not the only one. Here are some additional tips to consider:
Shop Around: Don’t simply renew your existing policy without comparing quotes from other insurers. Prices can vary significantly, so it’s worth taking the time to shop around. Use online comparison websites to get multiple quotes quickly and easily. You may be surprised at the differences in price for similar coverage.
Bundle Your Insurance: Many insurers offer discounts if you bundle your car insurance with other policies, such as home or contents insurance. Check with your current insurer and other providers to see if you can save money by bundling.
Increase Security: Installing security features like alarms, immobilizers, or tracking devices can reduce the risk of theft and lower your premium. Check with your insurer to see what security features they recognize and the potential discounts they offer.
Limit Driver Cover: Consider limiting the number of drivers covered by your policy. If only one or two people drive the car, removing other drivers can reduce your premium. Ensure that anyone who drives the car regularly is listed on the policy, as driving without being a named driver can invalidate your insurance.
Pay Annually: Some insurers offer discounts for paying your premium annually instead of monthly. Paying annually reduces their administrative costs, and they pass the savings on to you.
Review Your Coverage: Regularly review your coverage to ensure it aligns with your current needs. If your car is older and less valuable, you might consider switching to third-party fire and theft insurance, which offers less comprehensive coverage but is significantly cheaper.
Improve Your Credit Score: While not always a direct factor, a good credit score can sometimes influence your insurance premium. Maintaining a good credit score demonstrates financial responsibility, which insurers may view as a positive indicator. Insurers may check your credit score to see if you are able to pay insurance premium on a regular basis.
Increase Your No Claims Bonus: Drivers with a history of no claims qualify for a no claim bonus, which reduces the insurance premium significantly. You’ll want to ensure you don’t lose your no claim bonus if you are switching insurers. Most insurers will honour a no claim bonus from the prior insurer.
Participate in safe driving programs: Some providers may offer premium reductions for drivers who have completed advanced or defensive driving courses, such as the courses provided by AA Driver Training. These courses demonstrate a commitment to safe driving and can reduce your risk profile.
Maintain Your Car: Regular maintenance can help prevent accidents and reduce the likelihood of claims. Keep your car in good working order and address any potential issues promptly.
Navigating Claims and Excess Payments
Knowing what to do when you need to make a claim is just as important as choosing the right excess. Here’s a breakdown of the claims process and how excess payments work:
1. Report the Incident: As soon as possible after an accident, report it to your insurance company. Provide them with all the necessary details, including the date, time, and location of the incident, a description of what happened, and the contact information of any other parties involved.
2. Fill Out a Claim Form: Your insurer will provide you with a claim form to complete. Fill it out accurately and honestly, providing all the information requested. Attach any supporting documents, such as photos of the damage, police reports, or witness statements.
3. Assessment and Repair: The insurance company will assess the damage and determine the cost of repairs. They may send an assessor to inspect the vehicle or ask you to obtain quotes from approved repairers.
4. Excess Payment: Once the claim is approved, you’ll need to pay your excess. This is typically paid directly to the repairer before they begin work on your car. Alternatively, the insurer may deduct the excess from the final settlement amount.
5. Repairs Completed: Once the repairs are completed and you’ve paid your excess, you can collect your car from the repairer.
It’s vital to understand your policy’s claims process and your responsibilities. Failing to follow the correct procedure can delay or even invalidate your claim. Moreover, if the accident was not your fault, but you are forced to pay your excess, you may be eligible to recover it from the at-fault driver by taking them to the Disputes Tribunal. You have to prove they were negligent. Your insurance will usually undertake this on your behalf.
Addressing Common Misconceptions About Car Insurance Excess
There are several misconceptions surrounding car insurance excess that can lead to confusion and poor decision-making. Let’s debunk some of the most common ones:
Misconception 1: A lower excess always means better coverage.
Reality: While a lower excess means you pay less out-of-pocket in the event of a claim, it also means you’ll pay a higher premium. It’s not necessarily ‘better’ coverage; it’s simply a different way of managing your risk and costs.
Misconception 2: All insurers have the same excess options.
Reality: Insurers in New Zealand offer a range of excess options, and the amounts can vary significantly. Some insurers may also offer different types of excess, such as voluntary or age-related excess.
Misconception 3: My excess is waived if the accident wasn’t my fault.
Reality: While some policies may offer a “no-excess if not at fault” clause, this is not standard across all policies. In situations where you are liable to pay the excess but not at fault, your insurance will proceed with the claim by paying damages and repair costs, including your excess. Their claim recovery team will attempt to recover all damages from the liable party. If they are successful, this excess will be repaid to you.
Misconception 4: Paying lower excess will guarantee claim eligibility.
Reality: It is important to remember that paying an excess simply contribute towards your repair bill. Not all valid claims will be eligible, because the incident may be excluded in your policy. Some common exclusions may include using car for commercial purposes or for racing.
Case Studies: Success Stories of Optimizing Car Insurance Excess
Let’s look at some case studies that highlight different successful cases whereby optimizing car insurance excess have optimized risk and costs.
Case Study 1: The Young Professional
Mark, a 23-year-old working in Auckland, had just purchased his first car. Being in his younger age range, he already had a high premium amount. He initially chose a low excess of $300. However, after comparing quotes and considering his careful driving habits, he increased his excess to $750. The lower premium now saves him $20 per month. Since he is an experienced driver who drives safely, he is happy with the additional risk.
Case Study 2: The Family with Multiple Drivers
The Smiths, a family with two teenage children, shared a family car. Initially, they opted for a low excess due to the inexperienced drivers. They paid $1500 per year. After a year, they decided to have driving lessons, and have their children specified to drive the car. By adding their children as named drivers, they were eligible for $200 discount. Also, they have completed driving lessons, and thus are more experienced drivers. As a result, they opted for slightly higher excess $600, to reduce their premium further, ultimately paying $1100 per year.
FAQ Section
Q: What happens if the cost of repairs is less than my excess?
If the cost of repairs is less than your excess, you’ll need to pay the full amount yourself, and you won’t be able to make a claim.
Q: Can I change my excess during the policy period?
Generally, yes. Contact your insurer to request a change to your excess level. They may adjust your premium accordingly. It may be better to change your excess if you are at fault and have a history of accidents.
Q: Is it possible to have a zero excess car insurance policy?
Some insurers do offer policies with a zero excess option, but you should expect to pay a significantly higher premium for this level of cover. These are rare, and the cost may not be justified when compared to policies with a reasonable excess.
Q: What if I can’t afford to pay my excess after an accident?
If you can’t afford to pay your excess, the insurance company won’t be able to proceed with the claim. You’ll need to find a way to cover the excess amount yourself. Some insurers may offer payment plans, but this will depend on their specific policies.
Q: Does my excess apply to windscreen claims?
This depends on your policy. Some insurers have a separate (often lower) excess for windscreen claims, while others may waive the excess altogether for windscreen repairs. Check your policy document for details.
Q: Does my excess apply if my car is stolen?
Yes, your excess typically applies to theft claims as well as accident claims. You’ll need to pay the excess before the insurance company will cover the cost of replacing your stolen vehicle.
References
N/A – Article based on understanding of New Zealand car insurance market. It is advisable to consult a broker.
Ready to take control of your car insurance costs? Don’t leave money on the table by simply accepting your current premium. Take some time to compare quotes from different insurers and experiment with different excess levels to find the sweet spot that balances your financial responsibility with affordable coverage. Start shopping around today and see how much you could save. Your wallet will thank you!
