Is it better to have a high or low car insurance excess?

Yesterday at 02:00 PM

As car insurance costs continue to rise, an increasing number of Australians are raising their excesses to lower their insurance premiums – and experts say it’s not a terrible idea.

“More customers are now opting for higher excess amounts, which helps reduce their upfront premium costs,” a spokesperson for the Insurance Council of Australia (ICA) tells Drive.

RELATED: Is third-party car insurance worth it? Here's the honest truth

Vicki Staff, a spokesperson for Financial Counselling Australia, says raising your car insurance excess is an easy way to lower ongoing costs amid financial hardship.

“One of the first things we say to people is to increase your excess before you look at giving away insurance altogether,” Staff tells Drive.

But when is raising your insurance excess a good – or bad – idea? And what are the repercussions if you need to make a claim? Keep reading to find out.

What is an insurance excess?

An insurance excess is the out-of-pocket amount you must pay when making a claim before your insurer will begin their contribution.

For example, if you have an excess of $500 and you make a claim for an accident in which you’re at fault, you’ll need to pay $500 before your insurer will cover any repairs.

Sometimes, you only have to pay your excess when you’re the driver at fault, but other policies require you to pay an excess no matter what – so read the fine print.

“In most cases when you make a claim, you'll need to pay the excess stated in your policy,” insurance company Allianz explains on its website.

“If we determine you’re not at fault for the accident and you can provide the responsible party's details, you won’t have to pay an excess. You'll need to get details that would allow us to reasonably identify the person at fault so that we can recover our costs.”

You may also have an age-based excess listed on your policy, which may only apply if the driver of the vehicle at the time of the accident was under the age of 25.

Is it better to have a high or low car insurance excess?

The answer to this depends on whether you have the ‘rainy day savings’ to potentially pay a higher excess if you get into an accident, Staff says.

Having a higher insurance excess will mean a lower premium, which is certainly convenient provided you never have to make a claim.

Unfortunately, if you do have to make a claim, you’ll face a larger lump sum upfront.

Based on a comparative quote for a Subaru Outback owned by a 35-year-old male living in Chatswood, NSW, a $600 excess will mean a $2014 annual premium.

If you raise this excess to $2000, however, the annual premium drops to $1452 – representing savings of almost 30 per cent.

It’s best to weigh the benefit of lower ongoing premium costs against the potential for a large out-of-pocket expense.

And, let’s be honest, your own driving history will likely serve as a good indicator of whether you’re likely to make a claim.

What if I can’t pay my insurance excess?

“Of course, people often say, ‘If I have to make a claim and I've jacked my excess up super high, I won't be able to afford that excess’,” Staff says.

“This is where understanding your rights becomes very important.”

As it turns out, you have quite a few options should you find yourself in a financial pinch.

“Insurers are subject to the General Insurance Code of Practice, which means they need to have processes in place to support customers experiencing financial hardship,” an ICA spokesperson tells Drive.

“If someone making a claim can't afford to pay their full excess, it's recommended they contact their insurer to discuss available options. These could include deducting the excess from the claim amount, paying a reduced amount, or paying in instalments. It's best to speak directly with the insurer to understand specific arrangements.”

Staff says insurers can’t technically deny a claim if you’re unable to pay your full excess up-front. If they do, she advises that you, “Complain to your insurer first, as they have their own internal complaints team”.

“If you're not getting anywhere with that, the next step is to complain to the ombudsman, which is called the Australian Financial Complaints Authority (AFCA) – it's actually really easy to do. If your insurer has denied a claim for that reason, they'll get in trouble for that.”

Finally, Staff adds: “People have the right to talk to their insurer and apply for financial hardship. They can say to their insurer 'Can we work something out?’.

“You can ask for a payment arrangement to pay it off over time, you can ask for an extension of time, or if you want to just get a cash settlement from your insurer, you can ask for your excess to be taken out of your settlement amount.”

MORE: Insurance companies accused of ‘victim blaming’ over car theft

The post Is it better to have a high or low car insurance excess? appeared first on Drive.