Understanding your car insurance excess in New Zealand is crucial for minimising costs and maximising savings. It’s the amount you agree to pay towards a claim before your insurer covers the rest. Choosing the right excess can significantly impact your premium, so let’s delve into how to make informed decisions.
What Exactly IS Your Car Insurance Excess?
The excess is essentially your contribution towards any insurance claim you make. Think of it like a deductible—the portion you cover. This amount is deducted from the total payout you receive from your insurer if your claim is approved. For instance, if your claim is for $5,000 and your excess is $500, you’ll receive $4,500. A higher excess typically means a lower premium (the regular amount you pay for your insurance), and a lower excess means a higher premium. It’s a balancing act of risk appetite and affordability.
Types of Excess in NZ Car Insurance
New Zealand car insurance policies often feature different types of excess: Standard Excess, Voluntary Excess, and potentially other specific excesses like age-related or inexperienced driver excesses. Understanding these variations is key to tailoring your policy.
Standard Excess: This is the base excess set by the insurer and applies in most claim scenarios. It’s the default amount you’ll pay unless other excesses apply.
Voluntary Excess: This is an additional amount you can choose to add on top of the standard excess. By increasing your voluntary excess, you can usually lower your premium. It effectively signals to the insurer that you’re willing to bear a larger portion of the risk.
Age-Related Excess/Inexperienced Driver Excess: Insurers often apply higher excesses to younger or less experienced drivers, reflecting the increased risk they represent. This is because statistics show that inexperienced drivers are more likely to be involved in accidents. These excesses can be in addition to the standard and voluntary excesses.
Other Specific Excesses: Some policies may have excesses that apply to specific claim types, such as windscreen damage. Always carefully examine your policy details to understand which excesses apply to which situations.
Factors Influencing Your Car Insurance Excess
Several factors influence the excess amount you are offered and the corresponding impact on your premium. These generally depend on your circumstances and chosen insurer. Here’s a breakdown:
Driver Age & Experience: As mentioned earlier, younger and less experienced drivers almost always face higher excesses. This is based on statistical data showing a higher accident frequency in this demographic.
Driving History: A clean driving record (no recent accidents or traffic violations) could potentially result in a lower excess or a more flexible range of excess options. Insurers reward good driving behaviour.
Vehicle Type & Value: The type and value of your car also play a role. High-performance or luxury vehicles, more expensive to repair or replace, may attract higher excesses. Conversely, older, less valuable cars might have more flexible excess options.
Location: Your residential address and where you primarily park your car can influence your premium. Areas with higher accident or theft rates could result in a higher excess.
Policy Type: Comprehensive policies generally have more flexibility in excess options compared to third-party policies. Comprehensive insurance offers the most extensive coverage and is more customisable.
Choosing the Right Excess: A Practical Guide
Selecting the appropriate excess is not a one-size-fits-all decision. It requires a careful assessment of your financial situation, driving habits, and risk tolerance. Here’s a step-by-step guide:
1. Assess Your Risk Tolerance: Ask yourself how comfortable you are with paying a larger sum upfront in the event of an accident. Are you a cautious driver with a long history of safe driving? Or are you prone to minor incidents? Your personal risk profile should inform your decision.
2. Evaluate Your Financial Situation: Determine the maximum amount you can comfortably afford to pay as an excess without causing financial strain. Consider your emergency fund and monthly budget. If you can easily afford a higher excess, opting for it could significantly reduce your premium. However, if a high excess would be financially crippling, a lower excess is the safer choice.
3. Compare Premium Quotes with Different Excess Levels: Obtain quotes from multiple insurers, experimenting with different excess amounts. This will allow you to see the direct impact of excess on your premium. Use online comparison websites, but also consider contacting insurers directly for personalized advice.
4. Consider Your Vehicle’s Value: If your car is older and of low value, a very high excess might not be worthwhile. In some cases, the excess could be close to the car’s market value, making it almost pointless to claim for minor damage.
5. Read the Policy Wording Carefully: Before making a final decision, thoroughly read and understand the policy wording, paying close attention to the excess section. Make sure you’re aware of all the applicable excesses and under what circumstances they apply.
Real-World Examples
Case Study 1: The Young Driver
Sarah, a 20-year-old student, recently got her first car. Initially, her insurance quotes were very high due to her age and inexperience. By increasing her voluntary excess to $1000 (on top of a $500 standard excess), she managed to reduce her annual premium by $400. While this meant she’d have to pay a larger sum if she had an accident, she felt it was a worthwhile trade-off to make her insurance more affordable. She also made sure she had a separate savings account to cover that excess should the need arise.
Case Study 2: The Experienced Driver
John, a 55-year-old with a spotless driving record, wanted to lower his car insurance costs. He opted for a higher voluntary excess of $750 (bringing his total excess to $1000). His research showed that doing so lowered his annual premium by $250. Given his safe driving habits and his emergency savings fund, he considered it a calculated risk that was likely to save him money in the long run.
Negotiating Your Car Insurance Excess
While you can’t directly “negotiate” the standard excess, there are strategies you can use to potentially influence your overall insurance costs:
Shop Around & Compare: The most effective approach is to meticulously compare quotes from different providers. Prices and excess ranges vary significantly. By doing your homework, you might find an insurer with a lower standard excess or more favorable terms.
Bundle Your Insurance: Insurers often offer discounts to customers who bundle multiple insurance policies (e.g., car, home, contents). Bundling can sometimes lead to a lower overall cost, indirectly impacting the effective cost relative to your chosen excess.
Review Your Policy Annually: Car insurance premiums and policy terms change regularly. Each year, review your existing policy to ensure you’re still getting the best deal. Compare quotes again, even if you’re happy with your current insurer. Loyalty doesn’t always translate to savings.
Improve Your Security: Installing security devices in your car, such as an alarm or immobilizer, can sometimes lead to lower premiums. While this won’t directly change your excess, it can reduce your overall cost and indirectly make the excess more manageable.
Consider Usage-Based Insurance: Some insurers now offer usage-based insurance (UBI) policies that track your driving behavior through a telematics device. Safe driving habits are rewarded with lower premiums, potentially offsetting a higher excess. For instance, you might get a discount for consistently driving within speed limits and avoiding harsh braking.
Common Mistakes to Avoid
Choosing the wrong excess can lead to unexpected financial burden or missed savings opportunities.
Selecting Too High an Excess: This is perhaps the most common mistake. Don’t choose an excess so high that you’d struggle to pay it in the event of a claim. Prioritise affordability. Saving a few dollars on your premium isn’t worth the financial stress if you have an accident.
Ignoring the Policy Wording: Many people fail to read and understand the fine print, especially the section on excesses. This can lead to nasty surprises when making a claim. Familiarise yourself with all the policy terms and conditions before committing to a policy.
Focusing Solely on the Premium: While a low premium is tempting, it shouldn’t be the only factor influencing your decision. Consider the excess, coverage limits, and policy features as well. The cheapest policy isn’t always the best value.
Failing to Shop Around: Never settle for the first quote you receive. Obtain quotes from multiple insurers to compare prices, excess options, and coverage. Comparison websites are a useful starting point, but always check directly with insurers as well.
Forgetting About Special Excesses: Be aware of age-related, inexperienced driver, or other specific excesses that might apply. These can significantly increase your out-of-pocket costs in certain situations.
The Importance of Disclosure
Honesty is paramount when applying for car insurance. Failing to disclose important information, such as previous accidents, traffic violations, or pre-existing vehicle damage, can invalidate your policy and leave you uninsured.
Insurers rely on accurate information to assess risk and determine premiums. Withholding information is considered fraud and can have serious consequences. Always be upfront and honest, even if it means paying a slightly higher premium.
Making a Claim: How the Excess Works
Let’s say you’re involved in an accident and need to make a claim. Here’s how the excess typically works:
1. Report the Incident: Contact your insurer promptly to report the accident. Provide them with all the necessary details, including the date, time, location, and circumstances of the accident.
2. Assessment: The insurer will assess the damage to your vehicle and determine the cost of repairs. They may need to inspect your car or request quotes from repair shops.
3. Excess Payment: If your claim is approved, you’ll need to pay your excess before the insurer covers the remaining costs. The excess can be paid directly to the repair shop or to the insurer, depending on their procedures.
4. Settlement: Once the excess is paid, the insurer will settle the claim by paying for the repairs or providing a payout for the total loss of your vehicle.
Understanding “No-Fault” Accidents
In some instances, you might be involved in an accident that wasn’t your fault. Even in these scenarios, you might still have to pay your excess initially. Here’s the explanation:
Even if you are not at fault, your insurer will typically handle the claim and repair your vehicle promptly. This provides efficiency and ensures you’re back on the road quickly. You will pay your excess at the outset.
Your insurer will then attempt to recover the costs from the at-fault party’s insurance company (or the at-fault party directly, if they are uninsured). If they are successful in recovering those funds, including your excess, that excess amount will be reimbursed to you.
The Future of Car Insurance Excesses
The car insurance landscape is constantly evolving. Here are some potential future trends related to excesses:
More Personalized Pricing: Insurers are increasingly using data analytics and telematics to personalize pricing, including excess levels. As technology advances, we can expect even more tailored policies that reflect individual driving behavior and risk profiles.
Flexible Excess Options: Insurers may offer more flexible excess options, allowing customers to adjust their excess levels on a claim-by-claim basis. This could provide greater control and affordability.
Integration with Autonomous Vehicle Technology: As autonomous vehicles become more prevalent, the role of human error in accidents will decrease. This could lead to lower overall premiums and potentially lower excesses.
Subscription-Based Insurance: Subscription-based car insurance models are gaining traction. These models often offer flexible policies with varying excess options, similar to subscription services for other products and services.
FAQ Section
Q: What happens if I can’t afford to pay my excess?
If you cannot afford to pay your excess, the insurer typically won’t proceed with the claim. You’ll be responsible for covering the repair costs yourself. It’s crucial to choose an excess amount that you can realistically afford.
Q: Does my excess apply if the accident wasn’t my fault?
Yes, in most cases, you will initially need to pay your excess even if the accident wasn’t your fault. However, your insurer will attempt to recover the excess from the at-fault party’s insurer. If they are successful, you will be reimbursed your excess payment.
Q: Can I change my excess amount mid-policy?
Generally, yes, you can usually change your excess amount mid-policy, but it’s subject to the insurer’s approval. Changing your excess will likely affect your premium. Contact your insurer to discuss your options.
Q: What is the difference between a compulsory and voluntary excess?
A compulsory (or standard) excess is the base excess set by the insurer and applies to most claims. A voluntary excess is an additional amount you choose to add on top of the compulsory excess to lower your premium.
Q: How does the excess affect my no-claims bonus?
Making a claim usually affects your no-claims bonus. If you have a claim, your no-claims bonus will likely be reduced or removed, which could increase your premium in the future. However, some insurers offer “protected” no-claims bonuses, which allow you to make a certain number of claims without losing your bonus. Check your specific policy details.
Q: What if the damages are less than the excess?
If the damage to your car is less than your excess amount, then it doesn’t make sense to make an insurance claim. You will be responsible for paying for the full amount of the repairs yourself.
Q: Do I have to pay an excess if I’m claiming for windscreen damage only?
Some insurance policies have a separate, often lower, excess for windscreen damage. Also, some insurance companies do not charge an excess if you are only claiming for windscreen damage; however, this can vary between insurance providers so it’s important to read the details of your policy carefully.
Q: Is there a time limit to pay the excess after the claim has been approved?
Yes, there usually is. Check directly with your insurance provider. Some insurance providers will set a certain timeframe you must pay your excess by, so it’s best to follow up with an insurance company to clarify.
References:
Insurance Council of New Zealand (ICNZ): Various reports and publications on the New Zealand insurance industry.
Consumer NZ: Car insurance comparison and advice guides.
Individual Car Insurance Policy Documents and Product Disclosure Statements (PDS) from major New Zealand insurers (AA Insurance, AMI, State, etc.).
Understanding your car insurance excess is an ongoing process. Review your policy annually, reassess your financial situation, and compare quotes from different insurers. By taking a proactive approach, you can strike the right balance between affordability and coverage, ensuring you’re adequately protected without breaking the bank. Don’t wait until you need to make a claim; take control of your car insurance excess today!
