Imagine a storm damages your roof and causes flooding. You think your excess is $500. But your insurer applies a $500 standard excess, a separate $2,000 earthquake excess, and the Natural Hazards Commission (NHC) adds its own $500 excess. You are suddenly paying $3,000 before the insurer covers a cent. This is the reality of excess stacking in New Zealand, and it is one of the most overlooked parts of a property insurance policy.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Your excess is not just a fixed fee. It is a lever that controls your annual premium, but it can also hide nasty surprises if you do not read the fine print. Most homeowners focus on the premium and ignore the excess schedule entirely. That schedule determines how much you actually pay when something goes wrong. If you have ever wondered why a claim left you with a bigger bill than expected, the answer is almost always in the excess clauses.
Here is what you actually need to know.
Key Takeaways and What “Excess” Really Means
An insurance excess is the portion of a claim you pay yourself before your insurer pays anything. If you have a $500 excess and a $12,000 claim for storm damage, you pay $500 and the insurer pays $11,500. It is not a fee or penalty. It is a way of sharing risk between you and the insurer.
What I tend to notice is that people treat excess as an afterthought. They pick the lowest option without realising they are paying hundreds more in premium each year for coverage they may never use. The trick is finding the balance between a manageable out-of-pocket cost and a premium that does not eat your budget.
Types of Excess and What They Actually Cost You
New Zealand property insurance uses several types of excess. Each one applies to different events, and they can all hit your wallet at the same time.
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| Excess Type | Typical Amount | When It Applies |
|---|---|---|
| Standard (Base) | $250–$500 | Most claims: fire, theft, storm, burst pipes |
| Voluntary | $500–$2,500+ | You choose this on top of the standard excess to lower your premium |
| NHC (Natural Hazards) | $500 flat | Natural hazard damage (earthquake, landslide, volcanic activity) |
| Earthquake | 1% of sum insured or $2,000+ | High-seismic-risk zones: Wellington, Canterbury, Bay of Plenty |
| Flood | $5,000–$20,000 | Properties in identified flood-prone areas |
The premium saving from increasing your excess is largest at lower levels and shrinks as the excess gets very high. For a typical NZ residential property, moving from a $500 to a $2,500 voluntary excess reduces your annual premium by roughly 10–20%. That is a real cash saving every year, but it means you carry more risk yourself.
Let me put that in cash terms. An Auckland property with a $700,000 replacement value and a $400 excess might have an annual premium around $2,000. Choose a $2,000 excess instead, and the premium drops to roughly $1,500. You save $500 per year. But if you make a $10,000 claim, you pay $1,600 more out of pocket than you would have with the lower excess. The question is whether you will claim often enough for that extra cost to wipe out your premium savings.
Four Common Excess Mistakes That Cost Kiwis Thousands
Ignoring How Excesses Stack
Most people assume one excess applies per claim. In reality, multiple excesses can apply to a single event. After the Canterbury earthquakes, homeowners discovered that the old EQC percentage-based excess plus their private insurer’s excess left them with enormous self-funded portions. The new NHC flat $500 excess is clearer, but your private insurer’s earthquake excess still applies on top. If you live in Wellington, ask specifically whether your policy has a separate earthquake excess and how it interacts with the NHC excess. If you are unsure how your policy stacks excesses, getting a second opinion on your policy wording can help. Services like JustAnswer Business Law allow you to ask a professional to review the fine print.
Setting Your Excess Higher Than Your Emergency Fund
A simple rule: do not set your voluntary excess higher than the cash you could access within 30 days. If you have $2,000 in easily accessible savings, a $5,000 voluntary excess leaves you exposed if a claim occurs at a financially inconvenient time. First-home buyers who have stretched their savings to purchase a property should keep a lower excess in the early years, even if it costs slightly more in premium. As your savings recover, you can increase the excess at renewal to reduce costs.
Not Reviewing Your Excess Annually
Your excess should not be set and forgotten. Review it at each renewal in the context of your current savings position, any changes to your property risk profile, and current market pricing. The NZ insurance market is experiencing a soft period in 2025–2026, meaning insurer competition is creating better excess and premium combinations than in recent years. If you have not reviewed your policy in two years, you are almost certainly paying more than you need to.
Confusing Rebuild Cost with Market Value
This is not directly about excess, but it is the most common cause of financial shock at claim time. Your sum insured should reflect rebuild cost, not market value. Market value includes land, which does not need insurance. A rebuild cost includes demolition, site clearing, materials, labour, professional fees, and GST. Industry research consistently suggests a large proportion of NZ homes are under-insured. If your sum insured is too low, your excess percentage (like a 1% earthquake excess) applies to a smaller number, but the shortfall in coverage is far larger. Use a rebuild cost calculator like Cordell Sum Sure, or commission a registered valuer for older or architecturally distinctive homes.
How to Choose the Right Excess Level for Your Property
Assess Your Emergency Fund First
Calculate your accessible savings. Subtract at least three months of living expenses. The remainder is the maximum excess you can realistically afford. If that number is $1,500, do not choose a $2,000 voluntary excess. For complex properties or if you are a first-home buyer, a consultation can clarify your obligations. JustAnswer Real Estate Law connects you with property law specialists who can explain how your policy interacts with your mortgage conditions.
Match Excess to Your Claims Likelihood
If you own multiple properties, you can expect at least one claim annually across your portfolio. A higher excess saves premium on every policy. For a single owner-occupied home, consider how often you have claimed in the past decade. If you have never made a claim, a higher excess makes financial sense because the premium savings accumulate year after year without being offset by claim costs.
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| Feature | Low Excess ($400) | High Excess ($2,000) |
|---|---|---|
| Annual Premium | $2,000 | $1,500 |
| Out-of-pocket on $10k claim | $400 | $2,000 |
| Premium saving per year | — | $500 |
| Years to break even if no claim | — | 3.2 years |
Understand Policy-Specific Excesses
Read the Product Disclosure Statement (PDS), not just the policy summary. Identify every excess that applies: standard, voluntary, earthquake, flood, and any location-based excess. Tower, for example, applies location-based excesses for earthquake-prone areas. Ask your insurer or broker to explain exactly how these excesses interact if a single event triggers multiple coverage sections.
Review Annually and After Renovations
Set a calendar reminder for your renewal date. Check the current rebuild cost using an updated Cordell Sum Sure estimate. If you have added a deck, extended the kitchen, or installed a heat pump, notify your insurer so your sum insured stays current. Failing to report renovations is one of the fastest routes to discovering you are under-insured when you need to claim. For a deeper look at common policy pitfalls, read our guide on property insurance myths busted.
Frequently Asked Questions About Property Insurance Excess
What happens if my claim is less than my excess? ▾
Does the NHC excess apply on top of my standard excess? ▾
Can I change my excess mid-policy? ▾
Is there a maximum excess I can choose? ▾
Do I pay excess if someone else is at fault? ▾
What is the “self-insurance threshold” approach? ▾
The Future of Property Insurance Excess in New Zealand
The government review of house and contents insurance, expected to report findings in mid-2026, will examine market competitiveness and the drivers of price rises. Climate adaptation plans and the shift toward risk-based pricing mean excess structures will become more complex, not less. Flood excesses for properties in high-risk zones are already rising, and earthquake-specific excesses remain common in seismic areas. The best way to protect yourself is to understand your current excess schedule, match it to your financial reality, and review it every year. A few hours spent now could save you tens of thousands of dollars when it matters most.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Understanding Flood Damage Insurance for Your Property.
Sources and Further Reading
Declined Claims: How to Fight Back and Win Your NZ Property Insurance Battle — A practical guide if your claim has been rejected and you need to understand the dispute process.
Burst Pipe Nightmare: How to Avoid a Property Insurance Disaster in NZ — Walks through the specific excess and coverage issues around water damage claims.
Buildings Insurance NZ (2024). Buildings Insurance Excess Guide NZ. 🔗
Consumer NZ (2025). What’s Going On with Home Insurance. 🔗
Initio (2024). Demystifying Insurance Excess. 🔗
Compare.org.nz (2024). What is an Insurance Excess? 🔗
