What is a car insurance excess and how does it affect you?
Choosing a car insurance policy can be a complicated and overwhelming task, and one made no easier by the use of technical jargon and special insurance terms. One term in particular that causes confusion for Australian drivers is excess, so let’s take a closer look at exactly what car insurance excesses are and what they mean for your policy.
What is car insurance excess?
The car insurance excess is the amount you will be required to pay when you make a claim on your policy. In other words, it’s the amount you agree to contribute towards the cost of a claim, with the insurer covering the remaining amount.
For example, if your policy has a $500 excess and you make a claim for $3,000 damage to your vehicle, you’ll cover the first $500 of the repair costs and the insurer will foot the bill for the remaining $2,500.
However, the amount of excess payable varies depending on a number of factors. Not only does the excess differ according to the policy you select, but you can also adjust your excess higher or lower to vary your premium amount. In addition, specific drivers such as those under 25 years of age, may be required to pay a higher excess amount.
Why do insurers include an excess on their policies?
The purpose of car insurance excesses is to reduce the number of small claims insurers are required to pay out. If the excess didn’t exist, we’d all be able to lodge claims for every minor little bump, scratch and dent that our cars suffer.
While this may seem like a wonderful idea on the surface, in reality it would cause the cost of car insurance policies to skyrocket, and the premiums could leave a much bigger dent in your bank balance.
But by getting policyholders to agree to pay the first part of each claim themselves, insurers are able to prevent myriad claims for minor repairs and therefore keep car insurance premiums down. This in turn means that you can fall back on car insurance in those situations where you really need the financial protection it provides.
What types of car insurance excess are there?
It wasn’t all that long ago that there was only one type of car insurance excess. These days there are several excesses that may apply, and it’s worth remembering that you may need to pay more than one excess when you make a claim. Common excesses include:
- Standard driver excess. This is the standard amount you will need to pay when you make a car insurance claim. The excess varies depending on who is driving your car, and will typically range from $200 up to around $700. If the claim is for an incident where you weren’t at fault, some insurers will waive the excess altogether while others will require you to pay it upfront and then refund the excess amount once the claim has been processed and your car repaired. However, keep in mind that there are some policies that will require you to pay an excess even if you were not at fault.
- Voluntary excess. Most insurers allow you to pay an additional voluntary excess in return for a cheaper car insurance premium. Take a look at the ‘Can I reduce my excess?’ section further down the page for more information about how this works.
- Age excess. This excess applies to drivers under the age of 25 and reflects the fact that young drivers are statistically more likely to be involved in an accident or drive recklessly. The amount of a young driver excess varies substantially depending on your age, and it’s not uncommon for drivers under 21 to be slugged with an excess of $1,000 or more. It must be paid on top of the basic excess when you claim for an incident that occurred with a young driver behind the wheel.
- Inexperienced driver excess. Similar to the age excess, the inexperienced driver excess applies to people over the age of 25 who have only held their licence for a limited time, for example less than two consecutive years. If you’re an inexperienced driver and you’re involved in an incident that leads to a claim, you’ll need to pay this excess on top of the basic excess amount.
- Non-nominated driver excess. This excess may apply if you make a claim for an incident that occurred when your car was being driven by someone not listed on the policy. However, this excess isn’t charged by all insurers.
- Specific driver excess. Some insurers will impose an additional excess for claims that arise when your car is being driven by a specific person listed on your policy. This excess is applied if the insurer determines there to be a higher level of risk associated with providing cover for that particular person.
- Glass/windscreen excess. Some insurers will impose a specific excess for windscreen and window glass claims. However, many also offer the option to reduce or even waive this excess – if you’re willing to pay an additional premium, of course.
All of the excesses listed above may not apply to your car insurance policy. Check the fine print in the PDS for full details of what you’ll be required to pay when you make a claim.
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Can I avoid paying a car insurance excess?
While you will most likely have to contribute some amount towards the cost of a claim, it’s possible in some cases to avoid paying a car insurance excess. Instances where you can avoid paying an excess include:
- If the insurer allows you to waive the policy excess altogether by paying substantially higher premiums than would normally apply
- If you were not at fault and you can meet any conditions outlined in your policy, for example providing the name, address and registration number of the person who was at fault
- If you’re experiencing genuine financial hardship and are unable to pay your excess
Whether or not you can avoid paying an excess will once again depend on the terms and conditions of your policy. Check the fine print closely to find out if you’ll have to dip into your own pocket every time you claim.
How do I pay an excess?
How you pay your excess depends on the insurer and the nature of your claim. When you lodge a claim, your insurance company will advise you whether the excess:
- Will be deducted from any amount paid to you;
- Must be paid to the insurer; or
- Must be paid to the vehicle repairer when you collect your car
When do I not have to pay an excess?
The circumstances when you do not have to pay a car insurance excess generally depend on the insurer and your individual policy. If your insurer agrees to waive all excesses when you pay an additional premium, for example, then you won’t have to worry about contributing towards the cost of the claim. Just keep in mind that the additional premium you’ll be required to pay will probably be fairly substantial.
If you’ve fallen on hard times, you may also not be required to pay an excess. According to the Financial Ombudsman Service, if you’re experiencing financial difficulty and unable to pay the policy excess, this shouldn’t mean that your claim cannot be lodged and processed. However, you would need to be able to demonstrate that you are experiencing financial hardship, and you may still be required to pay the insurance excess over time.
Do I need to pay a car insurance excess if I’m not at fault?
The other main situation where you may be able to avoid forking out to pay a car insurance excess is when you are not at fault for the incident being claimed. This is not always the case, as some policies require you to pay an excess regardless of who was at fault.
In other situations, you can avoid paying the excess if you were not at fault and you can meet the conditions outlined by the insurer. For example:
- If the insurer agrees that you were not at fault in any way. It can be quite difficult to definitively prove that you did not contribute to an accident in some way, so establishing your innocence may not be as easy as you might think.
- If you can provide the name, address and rego number of the at-fault driver. If this condition applies, problems may arise if the at-fault driver flees the scene of the accident, refuses to supply their details, or if you forget to gather their information in the stressful aftermath of an accident.
- If the insurer recovers its costs from the at-fault driver. It could take months or years for this condition to be met, or it may never be met if the other driver is uninsured, can’t be found or refuses to pay the necessary amount.
So what can you do if you think you’re being unfairly asked to pay an excess? You could refuse to pay the excess and dispute it, but this means the insurer may not repair your car or may simply deduct the amount from any benefit you receive.
Another option is to pay the excess now, ensuring that your claim is processed quickly and you can get back on the road, and dispute the matter at a later date. However, it’s essential to seek independent legal advice before deciding on the best approach.
How much should I be paying?
The cost of your car insurance excess is determined when you take out cover. There’s a standard excess that applies to cover, but you can choose to adjust this to a higher level and receive lower premiums as a result. On the other hand, you may wish to lower the excess payable at claims time, which will of course lead to a higher premium.
The simplest way to find out the excess that applies to your policy is to check the certificate of insurance. You can also find a guide to the excesses imposed by your insurer in the PDS.
As a general guide, standard excesses tend to range from around $200 up to $700, but could be higher or lower depending on your circumstances.
Can I reduce my excess?
Yes, you can. When you apply for car insurance cover, many insurers will give you the option to choose your excess. You can:
- Choose the standard excess amount quoted.
- Increase your excess – doing so will lower your premium.
- Reduce your excess – this will result in a higher premium.
Should I reduce my excess?
You’re the only person who can answer that question. It’s really up to you, your budget and which option you think will represent the best value for money.
For example, while lowering your excess will reduce the financial strain at claims time, it means you’ll need to pay more to purchase cover in the first place. On the other hand, increasing your excess makes cover more affordable but could put pressure on your budget if you ever need to make a claim.
Whether you decide to increase your excess, lower it or even keep it at the same level, make sure that you’ll be able to afford to pay premiums whenever they’re due, and that the excess payable when you need to claim won’t put you under significant financial strain.