The Insurance Excess That Can Catch You Out

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An insurance policy can feel reassuring until you need to make a claim and discover you still have to pay part of the bill yourself. That contribution is called an excess, and it can make a considerable difference to the amount you receive from your insurer. Knowing how yours works before something goes wrong can help you avoid an unwelcome financial surprise.

An excess is the amount you agree to contribute towards a covered claim. If your excess is $500 and your insurer approves a claim for $2,000, you would generally be responsible for the first $500, with the insurer covering the remaining $1,500, subject to the policy’s terms. If the repair costs less than your excess, making a claim may not be worthwhile.

The important detail is that an excess is not always the same across every situation. Your car insurance may have a standard excess, for example, alongside a higher amount for an inexperienced driver.

Home insurance can have different excesses for particular events or types of damage. The amounts and conditions depend on your policy, so do not assume one figure applies to every claim.

There is also a trade-off when choosing your excess. A higher excess can reduce your regular premium, but it means finding more money yourself if you need to claim. Consumer NZ recommends choosing an amount you could realistically afford to pay at short notice, rather than selecting the cheapest premium without considering the consequences.

It is worth reviewing your excess whenever your policy renews or your circumstances change. If you have less money available in savings than you once did, a large excess could leave you struggling after an accident or unexpected damage. On the other hand, a lower excess may mean paying more for cover throughout the year.

Keep a note of the excesses that apply to your home, contents, and vehicle policies, including any special conditions. If the wording is unclear, ask your insurer to explain what you would pay in a few realistic claim scenarios. Understanding that figure now is far easier than trying to work it out when something has already gone wrong.