In the context of insurance, ‘excess’ is a predetermined amount that you, as the policyholder, agree to contribute towards the costs of your claim. It’s a form of self-insurance, with you bearing a small portion of the risk. The excess plays a key role in the insurance claims process, affecting both the premium you pay and the amount you receive if you make a claim. Some factors automatically increase your excess, including age or whether your property is a rental. Here’s how home insurance excess works.
Why do I have to Pay an Excess?
Excesses are designed to help keep insurance affordable for everyone. If all claims were covered, without an excess, insurance rates could balloon, leaving many people without access to insurance.
Excesses also work as an incentive to take care of your home and belongings. If all claims were covered, we might be less inclined to take care of our insured property.
When do You Pay the Excess?
Making a claim
You have to put your hand into your pocket and pay the excess amount when you make a claim on your insurance policy. If an insured event such as a fire, theft, storm, or natural disaster results in damage or loss to your home or its contents, your excess will be deducted from the total payout you receive from the insurer.
For example, if a repair to your home costs $1000 to fix, and your excess is $300, your insurer could deduct your excess from any settlement amount, depending on your claim.
Multiple Excess Payments
There are scenarios where you might have to pay more than one excess. For example, if you’ve taken out separate policies for your building and contents insurance and you lodge a claim for damages to both the building and its contents from the same event, you may need to pay an excess on each policy.
However, insurance policies and providers differ. Some insurance policies have a “one event, one excess” clause, meaning you only need to pay one excess (typically the highest) for an event, even if multiple damages occur during the event. So, it’s crucial to familiarise yourself with your policy details or discuss this with your insurer.
Natural Disasters and Special Excesses
Certain circumstances or types of claims may trigger a special excess. This is often the case with natural disasters. In New Zealand, claims related to natural disasters like earthquakes or landslides may have a different excess level. The Earthquake Commission (EQC) provides some of this cover.
The EQC covers some items and property, however, anything not covered by them may require you to pay an excess.
Some items not covered by ECQ include:
- Property that was uninsured at the time of the event
- Consequential losses that might occur after a natural disaster (e.g. theft or vandalism)
- Bushes, forests, lawns, trees
- Fruit or vegetable crops
- Roads, streets, driveways or paths
- Pavings or other artificial surfaces
- Tennis courts
- Swimming or spa pools, tanks or watertowers
- Jetties or wharves
The maximum amount of cover EQC will provide for your home is $345,000 + GST.
When Don’t You Pay the Excess?
No Claim Necessary
There are situations where paying an excess isn’t required. If the cost of the damage to your home or belongings is minimal, and the cost to repair or replace these is less than the amount of your excess, it might be more financially sensible to pay for the damages yourself, without making a claim on your insurance. Making smaller claims can also impact your future premiums, so it’s worth considering this before lodging a claim.
The excess can also be waived in certain situations. For example, if another person is at fault for the damage and their insurance company agrees to reimburse you for your loss, then you may not need to pay an excess. However, this can depend on the terms of your insurance policy, and it’s often subject to the discretion of your insurance provider.
How Much is the Excess?
The value of the excess can vary widely, often chosen by you when setting up the policy. It can range from a small to a substantial sum, typically impacting the cost of your insurance premiums – a higher excess generally leads to lower premiums, and vice versa. The reason for this is simple: when you agree to a higher excess, you’re essentially agreeing to take on a higher level of risk yourself, which reduces the risk for the insurance company.
Understanding when and how much excess you need to pay in the event of a home insurance claim is essential to effectively manage your financial risks. Always make sure you’re comfortable with the level of excess you’ve agreed to when setting up your policy. If you’re uncertain about any conditions of your policy, speak to your insurance provider.
About the reviewer of this page
This report was reviewed by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.