Should I take a higher excess or higher premium?

An excess is a payment that your insurance company 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.