Travel Insurance Excess Explained - The Definitive New Zealand Guide

Get a clear understanding of travel insurance excess and how it affects your policy cost and claim reimbursements. Our comprehensive guide explains how excess works in travel insurance, shares real-life examples and highlights the options, helping you make an informed decision.

Updated 11 June 2023

Summary

Travel insurance excess is often overlooked, but the amount you select affects how much you pay for travel insurance. Understanding how it works is essential when you're picking a policy.
In simple terms, the excess is the amount you're obliged to pay towards a claim you make on your travel insurance.
If you have a $100 excess and make a claim for $500, your insurance company will subtract your excess from the claim, which means they'll pay out $400. But if you have multiple "events", meaning different problems where claims arise, you'll be out of pocket for the excess on every claim, unless your excess is $0.
Understanding your travel insurance excess is vital when choosing the right policy. By considering both the policy cost and the excess, you can make a more informed decision and find a policy that best fits your needs and comfort with risk.

To help explain what you need to know, our guide covers:

Know This First: Who decides the excess level – the travel insurer or me?

Every travel insurer has a standard minimum excess level – for most, it's determined by the type of claim (e.g., medical, cancellation, lost bags).
However, some insurers allow you to drop your excess to zero or increase it to reduce your premium. For example, you may be offered a $0, $100, $200 or even $400 excess.
The higher your excess, the lower the premium (all other things being equal). This allows policyholders to adjust the excess to a level they're comfortable paying should they need to claim.

MoneyHub Founder Christopher Walsh shares his views on travel insurance excess:

"The biggest complaint about travel insurance after denied claims and slow payments is the excess charged. People don't like paying it and are immediately out of pocket despite having a policy meant to protect them.

The problem is easy to understand - you make a $500 claim, but there's a $200 excess, so you get back $300 despite having paid perhaps $200+ for a policy. The more claims you make for separate events, the more you 'lose' based on the excess being charged.

Everyone will have their view on how much excess to select. The good news is that many insurers don't sting you with an excess for claiming lost/stolen money, rental vehicle excesses and travel delays, but most will charge you an excess for claims on everything else. This means that claiming for a lost or delayed bag usually stings you with an excess.

If you want to avoid ending up out of pocket should you make a claim, paying for $0 excess can be the way to go. It makes the policy a little more expensive but doesn't double or triple your policy cost (as the videos and research below prove). However, it's a personal choice, and we've published this guide to explain excesses to help everyone make an informed decision".

Christopher Walsh
MoneyHub Founder

How Excess Works in Travel Insurance

Excess in travel insurance can be applied in different ways - per claim, per incident, or per policy. The method adopted can greatly affect how much you end up paying if you need to make a claim.
The excess has an impact on the cost of the insurance premium. Generally, a higher excess results in a lower premium, and vice versa. This is because you're agreeing to take on a larger share of the risk.
It's also important to note that the excess can vary depending on your claim type. For instance, you might have a different excess amount for medical claims compared to claims for lost baggage or trip cancellation. Some policies will offer 'excess-free' claims on certain events.

Understanding $0 Excess

In some cases, you might consider choosing a $0 excess option. This means that you wouldn't need to pay anything towards your claim, and your insurer would cover the entire amount. While this can be beneficial in the event of a claim, policies with a $0 excess often come with higher premiums, so you're essentially paying more upfront to avoid potential costs later.

Do all claims require the excess to be paid, or are there some exceptions?

Most travel insurance policies have an excess applicable to certain sections of the policy. However, some policies may have excess-free benefits (e.g., overseas emergency medical assistance). Check your policy, as this can vary.

When do you pay excess on travel insurance? Do I still have to pay the travel insurance excess if the incident wasn't my fault?

Excess is paid when you make a claim. The insurer will deduct the excess from the amount they pay you for your claim.
Unlike car insurance excess, the concept of fault doesn't usually apply to travel insurance. If you make a claim, you'll usually need to pay the excess, regardless of the circumstances that led to the claim. The only exception to this is when certain benefits have $0 excess.

Case Studies - How Excess Works in Travel Insurance NZ

Case Studies - Understanding Insurance Excesses with Examples

To help illustrate how excess works, we outline what's important with typical case studies:

Medical Emergency: Rachel is on holiday in Australia and unfortunately breaks her leg while hiking. Her medical bills amount to $5,000, and she has a travel insurance policy with a $200 excess for medical claims. This means her insurer would cover $4,800, and Rachel would pay $200.
Lost Baggage: Tom is travelling to Fiji and discovers that his luggage is missing upon arrival. He files a claim for $2,000 to replace his belongings. His policy has a $100 excess for lost baggage. Tom receives $1,900 from his insurer and bears the remaining $100 himself.
Trip Cancellation: Maria has booked a trip to Japan, but unexpected circumstances force her to cancel due to illness (which is covered by the policy). She claims back her non-refundable expenses, amounting to $3,000. Her policy has a $250 excess for trip cancellation. Maria gets $2,750 from her insurer and bears the remaining $250 herself.
$0 Excess: Jack has chosen a $0 excess policy and is visiting his family in the UK when he falls ill and needs urgent medical care. His bills total $4,500. Because Jack has a $0 excess, he doesn't need to pay anything towards this claim, and his insurer covers the entire amount.

Choosing the right excess level requires careful thought:

If you're comfortable with the risk and are able to pay a larger amount in the event of a claim, choosing a higher excess could lower your premium.
Always review the policy document carefully to understand the excess structure and amounts for different claim types.
When comparing travel insurance quotes, consider not just the premium but also the excess level.

Know This: The lower the excess, the higher the policy cost. MoneyHub Founder Christopher Walsh illustrates this in the video below:

Understanding the Costs of Claiming for Multiple "Events"

Travel insurance policies require an excess for every"event". This means that you'll have an excess deducted for every different type of claim, which can get expensive if you have some unlucky days while travelling. To show an extreme example of how this works, let's take the case of Jane. Jane is travelling in Europe for a month and bought travel insurance with a $200 excess for each claimable event.

She starts her trip in Paris, France and plans to visit several countries, including Italy, Spain, and Germany. She has purchased a comprehensive international travel insurance policy to protect against unexpected events.

Event 1 - Lost Luggage: Upon arriving in Paris, Jane discovered her luggage had been lost in transit. She had to purchase new clothes and toiletries. The total claim for this event amounted to $700, but after her $200 excess, she could claim back $500 from her insurance.
Event 2 - Illness in Italy: While enjoying the sights and sounds of Rome, Jane fell ill and needed to visit a local hospital for treatment, resulting in a bill of $700. After her $200 excess, she claimed $500 from her insurance.
Event 3 - Stolen Passport: Jane's passport and wallet were stolen from her bag in Barcelona, Spain. She incurred expenses replacing her passport and cancelling her credit cards totalling $700. After the $200 excess, she was reimbursed $500 by her insurance.
Event 4 - Flight Cancellation: Her flight to Amsterdam was cancelled due to an Air Traffic Controller strike. She had to pay for an additional night in a hotel and meals, which cost her $400. After her $200 excess, she was reimbursed $200 by her insurance.
Event 5 - Damaged Rental Car: While driving a rental car in Amsterdam, Jane accidentally damaged the car in a minor accident. The cost to repair the car was $1500. After her $200 excess, she claimed $1300 from her insurance.

In total, Jane's claims amounted to $4,000. After applying her $200 excess to each of the five events (5 x $200 = $1000), Jane was able to claim $3,000 back from her travel insurance. While she is down $1,000 overall, had she gone for an excess of $250 or $400 per event, she would have been more out of pocket.

Important - some insurance policies don't charge an excess on certain events, as outlined in the video below:

How Excess Works in Travel Insurance NZ FAQs

Frequently Asked Questions

Every travel insurance policy is different - please contact the insurer for specific policy questions. We have published our responses to general questions below but they are not specific to any policy or trip type.

If I have a $0 excess, does that mean my insurer will cover all costs?

Yes, if you have a $0 excess, your insurer would cover the entire claim amount. However, do note that your policy still has limits on the maximum amounts payable for different types of claims.

Can I choose my excess level?

Yes, many insurers offer the option to choose your excess level. However, choosing a lower or $0 excess typically means paying a higher premium. This video explains how this works (LINK).

What happens if my claim amount is less than my excess?

If your claim amount is less than your excess, it means you would bear the entire cost, as the insurer only pays for costs above the excess level.

How does the excess affect the cost of travel insurance?

As outlined above, generally, a higher excess results in a lower premium, and vice versa. This is because a higher excess reduces the insurance company's liability.

Can I change my excess after I've purchased my policy?

This depends on the insurer. Some may allow you to change your excess level after you've bought your policy, while others may not. If you're within 14 days of buying the policy, there's usually a "cooling off" period, so it may be better to cancel the policy, get a refund and buy another one if you haven't departed on your trip yet.

What happens if I can't afford to pay the excess at the time of a claim?

As an example, Southern Cross Travel Insurance's policy explains this best - "an excess is the first part of the claim, for which you are responsible. If an excess applies to a claim, we subtract that excess from the amount we pay". This means you don't need to advance any money to the insurer should you need claim.

If I have multiple incidents while travelling, do I have to pay the excess each time I claim?

Usually, yes. The excess applies per event or incident you claim for, not per policy. As an example, Southern Cross confirms that they "only subtract one excess for each unexpected event. So, if an unexpected event means you need to claim under more than one section of (their) policy, (Southern Cross) only subtracts one excess".

But, if more than one unexpected event affects you, Southern Cross subtract an excess for each event. For example, if you lose your bags on day 2 and then get ill and need to delay travel on say 12, you'll make two claims and given they're two different events, you'll have an excesses deducted from each payment.

Is the excess refunded if my travel insurance claim is denied?

No, the excess is only applicable when a claim is paid - there's no upfront cash payment when you claim and you will not have to pay an excess if your claim is denied.