A key part of getting an insurance policy is deciding how much excess you are willing to pay; or in other words, how much risk you want to take on.
What is Excess? Excess is the amount of money you must put towards your own loss before your insurance provider will cover the remainder. It is a feature of most insurance policies: from health insurance, to home and contents insurance, vehicle insurance, and pet insurance. Usually if you make multiple insurance claims, you will also have to make multiple excess payments. However, depending on which provider you are with, you may only need to pay one excess if all of your claims arise from the same event. Insurance providers generally offer a range of excess levels to choose from, and there are benefits and disadvantages to having policies with both low and high excess. Low excess means you can claim for smaller things that are cheap to fix, but you also need to pay higher monthly or annual premiums to your insurance provider. Higher excess means lower annual expenditure, but you may be left out of pocket if something unexpected happens. As an illustration, imagine a person making a claim after a car accident in which they were found to be at fault. The crash causes $3000 worth of damage. The person pays their excess amount of $500 first from their savings, and the remainder of the costs are covered by their insurance provider. Someone with a lower level of excess, and higher premiums, may have only had to pay $200 before their insurer covered the rest. Yet another person with high excess, for instance $2000, must cover the bulk of the costs themselves before they receive any benefit from their insurance policy. The third person is left with the stress of having to find a larger amount of money in a short space of time: on the other hand, as their insurance premiums are lower they may have been able to save more money. They may also be in a generally strong financial position and have factored this into account before deciding on their policy.
Do all insurance policies include excess? The vast majority of insurance policies do. When it comes to pet insurance you may also come across co-payment plans, where the owner and insurer split the cost of bills. Some providers also waive the excess on certain types of travel insurance claims.
What level of excess is right for me? The right level of excess for you depends on how much risk you are able and willing to take. Some questions you might like to ask yourself if you want to change your insurance policy, but are struggling to strike a balance between your excess and premium are:
if you were involved in a car accident or health crisis, how readily would the money you need to pay your excess actually be available to you?
Would you be prepared to deal with the stress of dealing with paying your excess, at an emotionally taxing time?
How likely is it that the risk you want to protect yourself against will eventuate?
Lower excess policies bring some peace of mind that should something go wrong, you won’t have to shell out a large sum of money with little notice. Some people also choose to create an emergency fund, which enables them to get a high excess policy with lower premiums while having confidence that they will be able to cover their expenses should anything happen. Another option for you may be to start with a lower excess and change that to a higher one as you get a sense of how much risk you are comfortable taking.
When you sign up to the Quashed platform, Quashed tracks your excess, enabling you to easily see how much money you will need to pay should you end up making an insurance claim.
How much can I save by having a higher excess? If you don’t have an insurance policy yet, is quite easy to shop around online and get a sense of how much you may be able to save by increasing your excess with different potential insurance providers. As an example, AMI provides a calculator for car insurance. Take a comprehensive insurance policy on a $40,000 Toyota Alphard from 2015: if you increase your excess from the default of $500 to the maximum of $2000 you can save more than $100 per year in your annual premium. By contrast lowering your excess from $500 down to the minimum of $100 will make your annual premium about $160 more expensive. The policy calculator generates similar differences in price on a new car as on an old Toyota Corolla from the late 1996, worth only $2000, despite the different in age and value. Tower insurance’s online quotes for house insurance show that you can save hundreds of dollars every year by increasing the excess of your house from the default of $500 to the maximum of $2500. Most providers, including providers of home, health and contents insurance, allow you to check out the difference high and low excess will make to your insurance premiums with online tools.
If you need advice deciding on which provider, policy, or level of excess is right for you, Quashed can put you in touch with insurance experts who can give you advice tailored to your needs and circumstances.
To get a better sense of how the market looks and whether you could get a better deal on your existing insurance policies, check out Quashed’s free Market Scan tool. All you need to do is bring your existing policies onto the platform or enter details of your policy, and Quashed will compare your policy to others across the prices and benefits and show you alternatives!
