Understanding your property insurance excess in New Zealand can save you a significant amount of money and stress. This article breaks down how excesses work, how to choose the right one for your situation, and tips for navigating claims smoothly, ensuring you get the most out of your policy.
What is an Excess and Why Does it Exist?
In property insurance, the excess is the amount you, the policyholder, agree to pay towards a claim before your insurance policy kicks in and covers the remaining costs. Think of it as your contribution to the repair or replacement. The insurance company covers everything beyond that amount, up to the policy’s coverage limits. The primary reason insurance companies implement excesses is to reduce the number of small claims they process. By making policyholders bear a portion of the initial cost, it disincentivizes people from claiming for minor damages, reducing administrative overhead and ultimately helping to keep premiums lower for everyone. It’s a risk-sharing method: you take on a small portion of the risk, and the insurer covers the larger, more significant losses.
Types of Excesses in NZ Property Insurance
In New Zealand, you’ll encounter various types of excesses on your property insurance policies. Understanding these differences is crucial for making informed decisions. The most common type is the standard excess, which applies to most claims such as storm damage, fire, or theft. However, you’ll likely find a range of other excesses that may apply depending on the nature of the claim, or the claimant involved.
For example, specific policy add-ons or optional benefits can attract separate higher excesses. If you have chosen to add flood cover or landslip cover to a standard policy, these may have their own higher excess levels. This is because these options may carry a higher risk factor for the insurance company, so the excess is set accordingly.
Another important excess to be aware of is those that may apply depending upon who is driving a vehicle involved in an accident on your property (if your policy includes vehicle cover for damage caused to your building by a vehicle). A driver under the age of 25, or a driver not named on the insurance policy may trigger a higher excess level. This reflects the higher risk profile associated with this category of drivers. Many policies will enforce a higher excess for all drivers who do not hold a full NZ driver’s licence, too.
Specific Excesses
Some policies also have excesses related to specific causes or events. For example, you might have a higher excess for earthquake damage, especially for properties in high-risk zones. Earthquake cover is often more expensive, and insurers will often have a higher excess in place to mitigate their potential risk. Review the fine print of your policy to understand exactly when each excess amount applies. Certain policies may also operate a tiered excess system, where the excess amount will depend on the total value of the subsequent claim.
How to Choose the Right Excess Amount
Selecting the appropriate excess amount involves carefully weighing your financial position and your attitude toward risk. A lower excess means you’ll pay less out-of-pocket when you make a claim, but your premiums will be higher. Conversely, a higher excess translates to lower premiums, but you’ll need to be prepared to pay more if an incident occurs. It boils down to finding a balance that aligns with your budget and risk tolerance.
Consider several factors. First, assess your financial ability to pay the excess amount. If you’re on a tight budget, a lower excess might be preferable because it provides more certainty about your out-of-pocket expenses. However, if you can comfortably afford a higher excess, you could save a considerable amount on premiums over time. Think about how likely you are to make a claim. If you live in an area prone to natural disasters (like flooding or earthquakes), or if your property is more susceptible to damage (e.g., due to its age or location), you might be more inclined to choose a lower excess. If you’re a careful homeowner with a well-maintained property, a higher excess might be a viable option.
Also evaluate the potential impact of each excess level on your premium. Gather quotes for different excess amounts and compare the premium costs. You might find that increasing your excess from $500 to $1000 only reduces your premium by a small amount. In that case, it might not be worth the extra risk. Conversely, if increasing your excess significantly lowers your premium, it could be a worthwhile trade-off. Remember to factor in the potential long-term savings. Over several years, even a small reduction in premium can add up to a substantial amount. However, balance this against the possibility of having to pay a higher excess if you need to make a claim.
Negotiating Excess Amounts and Premium Costs
While excess amounts are typically set by the insurance company, there might be some room for negotiation, particularly when you’re taking out a new policy or renewing an existing one. Don’t hesitate to ask your insurer if they offer any flexibility with excess amounts. They might be willing to adjust the excess slightly to better suit your needs, especially if you have a good claims history. Shopping around and comparing quotes from different insurers is a powerful way to negotiate better terms. When you have competing offers, you can leverage them to negotiate a more favorable excess amount or premium cost with your preferred insurer. Let them know that you’ve received a better offer elsewhere, and see if they’re willing to match or beat it. Some insurers offer discounts for bundling multiple policies (e.g., home, car, and contents insurance). These discounts can effectively lower your overall insurance costs, making it easier to manage your excess.
Consider increasing your excess if you’re facing a premium increase. By voluntarily raising your excess, you can offset the impact of the premium increase and keep your insurance costs manageable. However, make sure you can still comfortably afford the higher excess if you need to make a claim.
Strategies to Reduce Excess Payments
While choosing the right excess helps manage costs, proactively reducing the likelihood of making a claim can further save you money and hassle. Regular maintenance is critical. Preventative maintenance reduces the risk of incidents that could lead to insurance claims. For instance, regularly cleaning your gutters can prevent water damage, and maintaining your plumbing can prevent leaks and burst pipes. Schedule annual inspections of your property to identify and address potential issues before they escalate into costly problems. Checking your roof, electrical system, and HVAC system can help you catch minor issues early on.
Investing in smart home technology can help reduce the risk of certain types of claims. Installing security systems (such as alarms and cameras) can deter theft and vandalism, potentially lowering your premiums. Installing water leak detectors and automatic shut-off valves can prevent major water damage from burst pipes or leaks. Consider installing smoke detectors and carbon monoxide detectors to protect against fire and carbon monoxide poisoning. Many insurers offer discounts for homes equipped with these safety devices. Always adhere to building codes and regulations when making renovations or additions to your property. Non-compliant work can increase the risk of damage and may invalidate your insurance policy.
Maintain detailed records of your property’s condition and any maintenance or improvements you’ve made. This documentation can be helpful when filing a claim and can demonstrate that you’ve taken steps to mitigate potential risks. Keep receipts for all major repairs and upgrades. A professional valuation can help ensure you’re adequately insured without overpaying for coverage. Update your insurance policy annually or whenever you make significant changes to your property to ensure you have adequate coverage. Be transparent with your insurer about any potential risks or vulnerabilities your property might have. Hiding information can lead to claim denials or policy cancellations. For properties in areas prone to natural disasters, take steps to mitigate the risk of damage. This might include installing flood barriers for properties in flood-prone areas or reinforcing your home against earthquakes.
Navigating the Claims Process and Excess Payment
Filing an insurance claim can be a stressful experience, but understanding the process and your responsibilities can help make it smoother. Start by reviewing your policy to understand what’s covered and what’s not, as well as any specific conditions or exclusions that might apply. Document the damage as soon as possible after the incident, taking photos and videos of the affected areas. The more evidence you have, the stronger your claim will be. Take steps to prevent further damage to your property. For example, if you have a leaky roof, cover the affected area with a tarp to prevent water damage. If you have a broken window, board it up to prevent theft or weather damage.
Report the incident to your insurance company as soon as possible. The sooner you file a claim, the faster the process can begin. Provide your insurer with all relevant information, including the date and time of the incident, a description of the damage, and any supporting documentation you have. Cooperate with the insurance company’s investigation. They may send an assessor to inspect the damage and gather information. Be honest and transparent with the insurance adjuster, and provide them with any information they request. Understand the different stages of the claims process, from the initial assessment to the final settlement. This will help you stay informed and know what to expect. Obtain multiple quotes from contractors for the repairs or replacement work. This will help you ensure that you’re getting a fair price and that the work is done properly. Remember that you’re responsible for paying the excess amount to the contractor or repair service. Discuss payment arrangements with them in advance to avoid any surprises. Keep detailed records of all communication with your insurer, including dates, times, and the names of the people you spoke with. Also, keep copies of all documents related to the claim, such as the policy, the claim form, quotes, and invoices.
Disputes and Appeals Regarding Excess Payments
While most insurance claims are resolved smoothly, disputes can sometimes arise regarding excess payments. If you believe that your insurer has made an error or acted unfairly regarding your excess, you have the right to dispute their decision. Familiarize yourself with your insurance policy’s dispute resolution process. Most policies outline the steps you need to take to file a complaint or appeal a decision. Start by contacting your insurance company’s customer service department and explaining your concerns. Often, a simple misunderstanding can be resolved through open communication. If you’re not satisfied with the response from customer service, escalate your complaint to a higher level within the insurance company. This might involve contacting a claims manager or an ombudsman.
Gather all relevant documentation to support your case, including your insurance policy, the claim form, correspondence with the insurer, and any other evidence that supports your position. Consider seeking advice from a professional advisor or advocate who has experience with insurance disputes. They can help you understand your rights and navigate the dispute resolution process. If you’re unable to resolve the dispute directly with the insurance company, you can file a complaint with the Insurance & Financial Services Ombudsman (IFSO). The IFSO is an independent body that helps resolve disputes between consumers and insurance companies. They offer a free and impartial dispute resolution service. Be patient and persistent throughout the dispute resolution process. It can take time to resolve a dispute, but it’s important to stay focused on your goal and continue to advocate for your rights.
Case Studies: Excess in Action
Let’s look at a few real-world examples to illustrate how excesses work in practice.
Case Study 1: Storm Damage. Imagine a homeowner in Auckland experiences severe storm damage to their roof. The total repair cost is estimated at $5,000. Their insurance policy has a standard excess of $500. The homeowner is responsible for paying the $500 excess, and the insurance company covers the remaining $4,500. If the homeowner had chosen a higher excess of $1,000, they would have paid $1,000, and the insurance company would have covered $4,000.
Case Study 2: Earthquake Damage. A property owner in Wellington suffers damage to their foundations following a major earthquake. The total cost to remediate the damage is considerable, and several quotes are obtained, averaging at $80,000. The earthquake excess on this person’s insurance policy is $2,000. In this case, the homeowner is responsible for paying the $2,000 excess, and the insurance company covers the remaining $78,000.
Case Study 3: Water Leak. A family returns from holiday to find a burst water pipe has flooded their kitchen and living areas. The total cost of the repair, including replacing damaged cabinetry, flooring, and repairing the water pipe, is $800. The standard excess on the insurance policy is $500. The homeowner is responsible for paying the $500 excess, and the insurance company covers the remaining $300.
Practical Tips for Managing Your Excess
Consistently reviewing your insurance policy ensures the details align with your current circumstances and requirements. Life changes impact your coverage needs. When buying a home, consider costs such as mortgage insurance for lenders. Similarly, a car purchase could trigger income protection cover to ensure ongoing payments. Consider updating your policy annually or when undergoing home improvements to keep coverage relevant. Seek professional advice to ensure your existing policy covers new needs, so your family is not exposed to financial risk. Regularly check the policy’s coverage limits, exclusions, and conditions to ensure they still meet your needs. If you’ve made any changes to your property or your lifestyle, you may need to adjust your coverage accordingly.
Explore options for customized insurance solutions to better suit your unique needs. Insurance companies often offer the ability to customize your policy with add-ons or endorsements. For example, you might want to add coverage for specific risks, such as flood or earthquake damage. Be honest and transparent with your insurer about your property’s condition and any potential risks it might face. Hiding information can lead to claim denials or policy cancellations. Fully understand your responsibilities as a policyholder, including your duty to maintain your property and mitigate potential risks. Failing to meet these responsibilities could jeopardize your coverage. Stay up to date with changes in the insurance market and industry trends. This will help you make informed decisions about your coverage. Attend industry events, read relevant publications, and follow reputable insurance experts on social media.
FAQ: Demystifying Common Excess-Related Questions
Let’s address some frequently asked questions about excess in property insurance:
What happens if the damage is less than my excess?
If the repair cost is less than your excess, you’re responsible for covering the entire amount. In this case, you wouldn’t file a claim with your insurance company. However, it’s still a good idea to get a quote for the repairs, as it can help you determine if it’s worth making a claim.
Can I increase my excess mid-policy to lower my premium?
Yes, in general, you can adjust your excess amount mid-policy, although it varies among providers. Contact your insurance company to explore this option. They will provide you with a revised premium quote based on the new excess amount. Keep in mind that any adjustments to your policy will typically take effect from the date of the change.
Is it possible to have a zero excess?
Zero excess policies are uncommon in the New Zealand property insurance market, but some insurers might offer a very low excess option for a significantly higher premium. Such policies come with much higher premiums because the insurance company takes on all of the financial risk from the first dollar of damage. If you’re considering a zero excess policy, weigh the cost against the potential benefits carefully. A higher excess may make more financial sense.
What if the damage is caused by someone else’s negligence?
If the damage to your property is caused by someone else’s negligence, you can still file a claim under your insurance policy. Your insurer will pay out the claim amount (less your excess), and they may then attempt to recover the costs from the responsible party or their insurance company. This process is known as subrogation. If your insurer is successful in recovering the costs, they may refund your excess.
Does my excess apply to all types of claims?
Your excess may not apply to all types of claims. Some policies have specific excess amounts for certain events, such as earthquakes or floods. Additionally, some policies may waive the excess for certain types of claims, such as claims for theft or vandalism. Review your policy carefully to understand which excess amounts apply to which types of claims.
I have multiple properties. Do I have to pay an excess for each property if they are all damaged in the same event?
Generally, yes, an excess applies to each individual property affected in a single event. So, if a storm damages two of your rental properties, you’ll likely need to pay the excess for each property. However, this can vary. Check your policy wording or speak to your insurer to confirm their specific policy on multi-property claims resulting from a single event.
Is the excess tax deductible?
Whether your insurance excess is tax-deductible in New Zealand depends on the nature of your property and the purpose for which it is used. Generally, if you’re claiming insurance expenses as a business expense, the excess would also be deductible. Consult with a tax advisor for specific guidance.
Can I pay the excess in installments?
Whether you can pay your insurance excess in installments depends on your insurer and the specific circumstances of the claim. Some insurers may offer the option to pay the excess in installments, particularly for larger claims. Talk to your insurer directly to discuss your options—they may be willing to find a payment plan that works for your financial situation. If your insurer doesn’t offer installments directly, you might explore third-party financing options to cover the excess payment.
References
Insurance & Financial Services Ombudsman (IFSO) Scheme
Don’t let uncertainty about your property insurance excess leave you vulnerable. Review your policy today to ensure you understand the excess amount, the events covered, and any conditions that apply. Then, compare rates from multiple insurers to find the best coverage that also fits your budget. Understanding your excess is the first step toward a sound financial future. Ensure you’re adequately protected and potentially save money in the process!
