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Insurance Excess

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What is an excess in insurance?

Excess Definition

An insurance excess is an amount of money you, the policyholder, agree to pay when you make a claim on your insurance policy. Think of it like this: If something goes wrong and you need to use your insurance, the excess is your contribution to the costs before your insurance kicks in.

Why do insurance companies have an excess?

Insurance excess serves a few purposes:

  • It keeps the process of insurance claims straightforward and sincere. By having the policyholder pay an excess, insurance companies ensure that people only make claims when they genuinely need to.
  • It discourages lots of small claims, which can actually end up increasing everyone’s premiums in the long run.
  • Allows insurance companies, like those we work with here at Gerrards in New Zealand, to offer lower premiums to customers, saving you money over time.

 

In New Zealand most common excess amount is $500.

What Are the Different Types of Excesses?

When delving into insurance policies, you’ll notice there are several types of excesses:

  • Standard Excess: This is a set amount that you’ll pay whenever you make a claim. It’s established by the insurance company and is common across most policies.

  • Voluntary Excess: Some policies let you decide on your excess amount. Choosing to pay a higher excess when you make a claim can often lead to a reduction in your regular premium.

  • Age-Related Excess: This is sometimes added to policies for younger or less experienced individuals, recognizing the risks associated with these groups.

  • Special Excess: Occasionally, based on specific circumstances or the nature of what’s being insured, an insurer might add a unique excess. This is on top of the standard excess and is applied in particular situations.

How Exactly Does the Insurance Excess Work?

To paint a clear picture, let’s use a hypothetical situation. Imagine you have a car insurance policy with Gerrards, and your standard excess is NZD 500. One day, unfortunately, you rear end another car and cause NZD 2,000 worth of damage to your car.

In this scenario, you would pay the first NZD 500 (your excess), and the insurance would cover the remaining NZD 1,500 of repair costs They would also cover the damages to the third party as you were at fault. The process is similar for other types of insurance, whether it’s home, business, travel, or health.

What are the Advantages and Disadvantages of a High or Low Excess?

When deciding on your insurance excess, it’s essential to weigh the pros and cons:

High Excess

Lower monthly or annual premiums, saving you money over time.

A more significant upfront cost when you make a claim.

Low Excess

A smaller amount to pay when you make a claim.

Slightly higher premiums.

How Can You Decide on the Right Excess Amount?

Choosing the right excess is all about balance. Here are some guidelines to help you:

  1. Budget Considerations: Think about your monthly income and expenses. Can you afford to set aside an amount equal to a higher excess? If not, a lower excess might be better for you.

  2. Risk Assessment: Look at what you’re insuring and consider the risks. For example, if you live in an area where car accidents are more frequent, you might want a lower excess for your vehicle insurance.

  3. Consult with Experts: As insurance brokers, we at Gerrards are here to help. Discuss your concerns with us, and we can guide you to find the best balance for your needs.

Are There Common Misunderstandings about Insurance Excess?

One major misconception is thinking you always have to pay the excess, even if an incident wasn’t your fault. In many situations, if another party is responsible and their insurance accepts the claim, you might not have to pay your excess.

Another confusion is believing that a higher premium means better coverage. While sometimes true, it’s not always the case. A higher premium might simply be due to a lower excess, not necessarily better coverage. Always review your policy details and ask questions if you’re unsure.

Why is Understanding Your Insurance Excess Important?

Grasping the concept of insurance excess ensures you won’t face unexpected costs. Being informed allows you to make the best decisions about your insurance, ensuring that you, your family, and your assets are adequately protected without any surprising financial strains.

At Gerrards, we’re dedicated to providing New Zealanders with clear, transparent, and tailored insurance advice. So, whether you’re just starting out on your insurance journey or reassessing your current policy, understanding the ins and outs of insurance excess is a vital step.

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