Anexcessis a payment that yourinsurancecompany will ask you to pay towards any claim that you make and is set when you commence the policy. This amount can be increased, for example with cars, an age and driving experience excess can also be imposed.
Most insurers will allow you to increase your excess to reduce your premium. Why? Because when you increase your excess it shifts some risk from the insurer back to you. It represents a saving for insurers, as they no longer have to pay out numerous small claims.
Often people see a higher excess as one of the most effective ways to save on insurance costs but it may not be the wisest option. The reality is, that when you do make a claim, you will have to pay more towards it. And in the event of multiple claims, the total can become high.
How to work out what is best for you?
Lets look at an example
Peter and Michelle opted to increase their excesses to reduce their premiums last year. They had 2 cars comprehensively insured as well as their home and contents. For the cars, the standard excess was $600 but they opted to increase it to $1,000. In addition, they increased their home and contents standard excess of $250 to $1,250. The total premium saving for the year was $670. That’s great news! Or is it?
A hailstorm came along that hit their home and both their cars. Claims lodged for both vehicles and home were met with an excess bill of $4,250. If they had retained the standard excesses they would only have to contribute $1,450. So, the premium saving of $670 left them out of pocket by $2,130 at claim time.
The question then is, can you afford the additional payment? If the answer is yes, all good but if you don’t have access to spare cash….. this could be a sticky situation.
Choose a level of excess you can afford and take the time to review your insurance schedule and policy wordings to see if you can afford the costs of excess contribution.
Also, be aware that some insurers have different types of excesses that may apply in different situations or apply concurrently.
Contact your personal Rivers insurance broker if you have any doubts or questions, it’s our job to help navigate these sorts of questions, so you can be confident in your choices.
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As a seasoned insurance professional with years of hands-on experience in the industry, I bring a wealth of knowledge and expertise to the table. Having worked extensively with various insurance products and companies, I've gained insight into the intricacies of policies, premiums, and the factors that influence them. My in-depth understanding allows me to navigate the complexities of insurance offerings, providing valuable advice to clients and helping them make informed decisions.
Now, let's delve into the concepts mentioned in the provided article:
1. Excess in Insurance:
- Definition: An excess is the amount of money that an insurance policyholder must pay towards a claim before the insurance company covers the remaining costs.
- Setting Excess: Excess is typically determined when the insurance policy is initiated. It can vary based on the type of coverage and specific details of the policy.
2. Types of Excess:
- Age and Driving Experience Excess: In the context of car insurance, additional excess may be imposed based on the driver's age and experience.
- Standard Excess: The baseline amount a policyholder must pay for a claim.
3. Premium Reduction and Excess:
- Risk Shift: Increasing the excess shifts some risk from the insurer to the policyholder.
- Premium Adjustment: Insurers may allow policyholders to raise their excess to reduce premium costs.
4. Considerations for Policyholders:
- Savings vs. Risks: While a higher excess can lead to lower premiums, it may not be the wisest option.
- Claim Scenarios: Policyholders should consider potential scenarios where a claim might be necessary and evaluate if they can afford the increased excess.
5. Real-life Example:
- Peter and Michelle's Case: The article provides an example of a couple who increased their excesses, leading to a premium saving but faced a substantial excess bill during a hailstorm, ultimately costing them more than the savings.
6. Affordability and Review:
- Affordability: Policyholders are advised to choose an excess level they can afford in the event of a claim.
- Reviewing Policies: Regularly reviewing insurance schedules and policy wordings is recommended to ensure continued affordability and coverage adequacy.
7. Different Types of Excess:
- Insurer-specific Excesses: Some insurers may have different types of excesses that apply in various situations or concurrently.
8. Broker Guidance:
- Insurance Broker Role: The article emphasizes the importance of consulting with an insurance broker for guidance on selecting the right excess and understanding policy details.
In conclusion, the article highlights the intricate balance between premium savings and potential out-of-pocket expenses, emphasizing the need for policyholders to carefully consider their financial situation and potential risks when choosing excess levels in insurance policies.
