Insurance Excess - The Definitive Guide
Our guide outlines the basics of insurance excesses and how you can protect yourself when buying an insurance policy
Updated 29 December 2020
An insurance excess is the amount of money you pay an insurance company to process a claim. The excess must be paid upfront, and the amount will vary based on the insurance policy; anything from $100 to over $1,500 is possible. In most cases, the higher the excess amount, the cheaper the insurance policy's annual cost (all other factors being equal). Our guide outlines the basics of insurance excesses, how they work, the cost and must-know facts. This guide covers:
​What is an Insurance Excess?
Insurance excesses are included as part of any policy - when you buy insurance, you agree to a specific excess should you need to claim. This amount will almost always be a set dollar amount. If and when you need to claim, you'll pay the excess amount first to activate your policy.
For example, if your car insurance excess is $400 and you are at fault in an accident, you will need to pay your insurer $400 for them to cover your claim. The insurer, once its assessment is complete, will pay your the claim value (up to the policy limits and in accordance with the policy's wording).
For example, if your car insurance excess is $400 and you are at fault in an accident, you will need to pay your insurer $400 for them to cover your claim. The insurer, once its assessment is complete, will pay your the claim value (up to the policy limits and in accordance with the policy's wording).
How an Insurance Excess Works (and Common Examples and Queries)
Insurance excesses are part of any insurance contract. Insurance covers you for losses you can't afford, such as writing off a car or seeing your home destroyed. While the insurer covers this loss, they offer you a choice in the excess amount, which determines how much they'll charge annually for the policy. The higher the excess, the less of the risk for the insurer. For example:
All other factors being equal, the higher the excess, the more risk the policyholder takes on and, as a result, the lower the annual insurance cost.
- A $10,000 market value car insured with a $1,000 excess costs $400/year to insure, whereas with a $400 excess, the cost jumps to $550/year.
- A $600,000 replacement value home insured with a $1,000 excess costs $700/year to insure, whereas with a $500 excess the cost jumps to $950/year.
All other factors being equal, the higher the excess, the more risk the policyholder takes on and, as a result, the lower the annual insurance cost.
How Much Is the Excess?
The excess will vary based on what you select. Insurers offer a range of options - from $100 to $1,500 or more. If you're unsure what your excess is, the amount will be listed in your policy documents. If you're not sure what it is or can't find it, contact your insurer. Some products, such as life insurance, doesn't usually have an excess as it's a one-claim only policy.
Who Decides How Much the Excess Will Be?
When you buy an insurance policy, it is your choice how much you want the excess to be. As stated above, the higher the excess, the lower the annual cost of your insurance (assuming you don't continuously claim on the policy). If you want to save money on your ongoing insurance costs and are happy to self-insure for the excess amount, increasing the excess for car, home and contents will mean lower premium costs.
Choosing an excess level creates a partnership between you and the insurance company where you both agree to share some of the financial risks.
Choosing an excess level creates a partnership between you and the insurance company where you both agree to share some of the financial risks.
​How Can I Save Money With a Higher Excess?
Most New Zealanders have house and car insurance, but very few make a claim every year. This means the excess isn't an ongoing cost - it's a one-off charge if and when you make a claim. To save the most money, you would need to have a high excess and not claim. For insurance like third party car insurance, you're unlikely to claim often unless you're a bad driver. For this reason, a higher excess will save you a lot of money every year. However, choosing the right excess amount should be a decision based on your personal finance situation.
Example Comparison: Comprehensive and Third Party Car Insurance Annual Policy Costs with Different Excess Amounts
Source: Tower.co.nz Agreed Value of car = $4,500, Auckland location, 35-year-old male driver
Source: Tower.co.nz Agreed Value of car = $4,500, Auckland location, 35-year-old male driver
Excess |
Third-Party Car Insurance Annual Policy Cost |
Comprehensive Car Insurance Annual Policy Cost |
$400 |
$215.37 |
$546.94 |
$500 |
$202.10 |
$517.58 |
$750 |
$175.56 |
$458.86 |
$1,000 |
$154.33 |
$411.88 |
Difference from highest excess ($1,000) to lowest ($400) |
$61.04 |
$135.06 |
What is Co-Payment, and How Does it Differ to Insurance Excess?
Co-payment is most common with pet insurance, where the cost of vet bills are 'co-paid' between the claimant and the insurer. The co-payment amount usually replaces the excess (but, for some policies, you'll pay both an excess amount and a co-payment).
For example, if you incur a $1,000 vet bill and have a pet insurance policy that requires 20% co-payment, you'll need to pay $200 (20% of $1,000, which is the co-payment) to claim the $1,000 vet bill. Co-payment can be problematic if the total claim costs get high - for example a $5,000 or even $10,000 vet bill means paying $1,000 or $2,000 respectively.
There are pet insurers who offer excess-only policies to limit the risk, meaning you won't have the responsibility (and uncertain expense) of a co-payment.
For example, if you incur a $1,000 vet bill and have a pet insurance policy that requires 20% co-payment, you'll need to pay $200 (20% of $1,000, which is the co-payment) to claim the $1,000 vet bill. Co-payment can be problematic if the total claim costs get high - for example a $5,000 or even $10,000 vet bill means paying $1,000 or $2,000 respectively.
There are pet insurers who offer excess-only policies to limit the risk, meaning you won't have the responsibility (and uncertain expense) of a co-payment.
How Many Excesses Do I Need to Pay?
You pay one excess per claim, which means every time you claim you pay another excess. If you have two events that lead to two separate claims, the insurer will require two excesses to be paid (even if the events causing the loss are only a few days apart).
The only way to avoid paying two excesses is to prove the two events are related, or the second was caused by the first. However, such instances are very rare, and most people claiming on insurance do so very infrequently.
The only way to avoid paying two excesses is to prove the two events are related, or the second was caused by the first. However, such instances are very rare, and most people claiming on insurance do so very infrequently.
How Do I Pay an Excess, and What Form of Payment is Accepted?
When an event occurs and you need to claim, you'll need to contact your insurer. Once it's confirmed you are covered, you will be asked to pay the excess at the same time you make a claim. Usually, insurers will accept a credit card or a bank transfer. Once payment is made, the insurer will process your claim.
Insurance Excess - Our Conclusion
- An insurance excess is the fixed amount you agree to pay upfront to claim on your insurance policy.
- The dollar amount of excess varies between policies; generally, the lower the excess, the higher the annual insurance policy cost.
- Insurers are flexible and let the customer choose the level of excess they're comfortable with - this can be anything from $100 to $1,500, depending on the product. Some products, such as travel insurance, offer customers zero-excess policies which means you can claim without paying anything upfront.
- How much excess you choose for your policy should be assessed based on what you can afford - if in doubt, always go for a lower excess so you can be certain your claim will be processed without delay.
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