What is Insurance Excess?
Insurance excess (also called a "deductible") is the amount you agree to pay yourself when you make a claim on your insurance policy. It represents your share of the financial risk and helps keep premiums more affordable.
Example in Practice
If you have a $500 excess on your business insurance policy and you make a claim for $5,000 in damages, you would pay the first $500 and your insurer would pay the remaining $4,500.
Types of Excess in New Zealand
Different types of insurance policies have different excess structures. Understanding these can help you make informed decisions.
Standard Excess
The basic excess amount that applies to most claims. This is the most common type and is specified in your policy schedule.
Fixed Excess
A set dollar amount that doesn't change regardless of the claim. Common in property and liability policies.
Percentage Excess
Calculated as a percentage of the claim amount. Often seen in marine cargo or high-value property insurance.
Voluntary Excess
An extra excess you choose to add to lower your premium. You can select a higher voluntary excess in exchange for reduced premiums.
How Excess Affects Your Premiums
Understanding the relationship between excess and premiums is key to finding the right balance for your business.
The Trade-Off
- Higher excess = Lower premium payments
- Lower excess = Higher premium payments
- Your insurer spreads the risk across all policyholders
Example: Car Insurance in NZ
For a typical commercial vehicle policy in New Zealand:
| Excess Amount | Estimated Monthly Premium | Annual Premium |
|---|---|---|
| $300 | $180 | $2,160 |
| $500 | $155 | $1,860 |
| $1,000 | $125 | $1,500 |
| $2,000 | $95 | $1,140 |
* Figures are illustrative only and vary based on individual circumstances
Choosing the Right Excess
Finding the optimal excess level requires balancing your risk tolerance with your budget.
Assess Your Cash Flow
Consider how much you could comfortably pay out of pocket if you needed to make a claim. Choose an excess that won't strain your business finances.
Calculate Potential Savings
Compare the premium difference between excess levels over a year. If raising your excess by $500 saves $200 annually, it takes 2.5 years to "break even" on the higher excess.
Consider Claim Likelihood
If your business has a high risk of claims, a lower excess might be worthwhile. For low-risk businesses, a higher excess can provide significant premium savings.
Review Regularly
Your circumstances change. Review your excess levels annually during your insurance review to ensure they still match your situation.
Common Excess Amounts in NZ
Excess amounts vary by policy type and insurer. Here's what's typical in the New Zealand market:
| Policy Type | Typical Excess Range | Common Default |
|---|---|---|
| Commercial Motor | $300 - $2,000 | $500 |
| Public Liability | $500 - $5,000 | $1,000 |
| Property (Buildings) | $500 - $10,000+ | $1,000 |
| Contents | $200 - $2,000 | $500 |
| Business Interruption | $1,000 - $10,000+ | $2,500 |
| Professional Indemnity | $1,000 - $10,000+ | $2,500 |
| Marine Cargo | $250 - $5,000 | $500 |
New Zealand-Specific Considerations
- Earthquake Commission (EQC)
NZ homeowners may have EQC cover reducing the excess on dwelling claims. The standard EQC excess is $1,000 plus a 1% of sum insured for land claims.
- Natural Disaster Deductibles
Some insurers apply higher excesses for flood, landslide, or earthquake damage. Always check your policy wording.
- Unspecified Drivers Excess
If you don't specify drivers on your fleet policy, you may face a higher excess. Consider named drivers for better rates.
- Security Discounts
Installing alarm systems, sprinklers, or other security measures may reduce your excess or premium. Ask your insurer about discounts.
Key Takeaways
- Excess is what you pay before insurance kicks in
- Higher excess = lower premiums
- Choose an excess you can afford
- Review annually as your business changes