Understanding Car Insurance Excess: How It Works & How to Choose
Car insurance excess is one of the most important but often misunderstood aspects of your policy. The excess you choose significantly impacts both your premium and your out-of-pocket costs when claiming. This comprehensive guide explains everything you need to know about insurance excess in New Zealand and how to choose the right amount for your situation.
Table of Contents
What is Car Insurance Excess?
Car insurance excess (also called a deductible) is the amount you must pay towards any insurance claim you make. It's your contribution to the claim before your insurance company pays the rest.
Simple Example
You have a car accident causing $5,000 damage to your vehicle. Your total excess is $600.
- Total repair cost: $5,000
- You pay (excess): $600
- Insurance pays: $4,400
The excess serves two important purposes:
- Reduces insurance costs: By sharing risk with policyholders, insurers can offer lower premiums
- Prevents small claims: The excess discourages claims for minor damage that you could afford to repair yourself
Key Points About Excess
- • You pay excess per claim, not per year
- • Excess applies to your vehicle only, not damage to other parties
- • Higher excess = lower premium
- • Lower excess = higher premium
- • You can choose your excess amount (within limits)
- • Some excesses are compulsory and cannot be changed
Types of Excess Explained
Your total excess is often made up of several components. Understanding each type helps you accurately calculate what you'd pay if you need to claim.
1. Basic (Voluntary) Excess
This is the standard excess you choose when taking out your policy. It applies to all drivers and all claims.
Typical Options:
Impact on premium: Increasing your basic excess from $400 to $750 typically reduces your annual premium by $100-200. Increasing to $1,000 can save $150-300 per year.
2. Young/Inexperienced Driver Excess
An additional excess that applies when drivers under a certain age (usually 25) or with limited experience (less than 2 years licensed) are driving.
Typical Young Driver Excess:
| Driver Age | Additional Excess |
|---|---|
| Under 21 years | $500 - $800 |
| 21-24 years | $300 - $500 |
| 25+ years | $0 |
Important: This excess applies even if the young driver is not at fault. You cannot remove it by increasing your voluntary excess. The only way to avoid it is to not have drivers under 25 listed on your policy.
3. Inexperienced Driver Excess
Some insurers apply an additional excess for drivers who have held their full license for less than 2 years, regardless of age.
Typical amount: $200-400 additional excess
4. Unlisted/Unnamed Driver Excess
An additional excess (often $250-400) that applies if someone not specifically named on your policy drives and has an accident. This is different from young driver excess and applies to any unlisted driver of any age.
5. Windscreen Excess
Most comprehensive policies have a separate, lower excess for windscreen and glass damage claims. This encourages people to repair windscreens promptly for safety.
Typical windscreen excess: $0-150 (much lower than standard excess)
Total Excess Calculation Example
Scenario: 22-year-old driver makes a claim
How Excess Works When You Claim
Understanding exactly when and how you pay your excess is important for managing the claims process.
Payment Methods
How you pay your excess depends on the claim type:
Repairable Damage
Your vehicle goes to a repairer for fixing:
- • Excess is paid directly to the repairer
- • You pay when collecting your repaired vehicle
- • Payment by credit card, debit card, or cash
- • Insurance pays the remaining repair cost to repairer
Write-Off (Total Loss)
Your vehicle is deemed uneconomical to repair:
- • Excess is deducted from settlement payment
- • Insurance pays you: market value minus excess
- • You don't need to pay excess separately
- • Settlement is typically paid within 5-10 business days
When You Pay Excess
At-Fault Accidents
You caused the accident - you pay your full excess
Not-At-Fault (Unrecovered)
Other party at fault but uninsured/unknown - you pay excess initially, may be refunded if recovered
Theft, Fire, Weather Damage
No other party involved - you pay your excess
Vandalism
Malicious damage by unknown party - you pay excess
When You Don't Pay Excess
Not-At-Fault (Insured Party)
Other party at fault and has insurance - most insurers waive your excess (but check your policy)
Windscreen-Only Claims
Some policies offer $0 excess for windscreen repairs (not replacement)
Covered by Other Party
Claiming directly against other party's insurance instead of your own
Real-World Examples
Example 1: At-Fault Minor Accident
Situation: You back into a pole, causing $2,800 damage
Your excess: $500
Your total out-of-pocket cost: $500
Example 2: Not-At-Fault Accident (Insured Party)
Situation: Another driver runs a red light and hits you, causing $6,500 damage. They're insured.
Your usual excess: $500
Your total out-of-pocket cost: $0
Example 3: Vehicle Written Off
Situation: Your car is stolen and never recovered
Vehicle market value: $18,000
Your excess: $500
Effective out-of-pocket cost: $500 (excess deducted from settlement)
How to Choose Your Excess Amount
Selecting the right excess requires balancing affordability, risk tolerance, and long-term value. Use this framework to make an informed decision:
Step 1: Assess Your Financial Position
Ask yourself:
- What's the maximum amount I could pay tomorrow if needed?
- Consider your emergency fund, available credit, and cash flow
- Be realistic - having to pay excess shouldn't cause financial hardship
General Rule:
Your excess should not exceed one month's discretionary income or 10% of your emergency fund, whichever is lower.
Step 2: Evaluate Your Risk Profile
Rate yourself on these risk factors (1 = low risk, 5 = high risk):
Risk Score Interpretation:
- 6-12 points: Low risk - consider higher excess ($750-1,500)
- 13-20 points: Medium risk - standard excess ($400-750)
- 21-30 points: Higher risk - lower excess ($250-400)
Step 3: Calculate Long-Term Value
Compare total costs over 5 years with different excess levels:
5-Year Cost Comparison
Assuming one claim in year 3:
| Excess | Annual Premium | 5yr Premiums | Excess Paid | Total Cost |
|---|---|---|---|---|
| $250 | $1,500 | $7,500 | $250 | $7,750 |
| $500 | $1,350 | $6,750 | $500 | $7,250 |
| $750 | $1,280 | $6,400 | $750 | $7,150 |
| $1,000 | $1,200 | $6,000 | $1,000 | $7,000 |
In this scenario, $1,000 excess saves $750 over 5 years despite the higher one-time excess payment.
Step 4: Make Your Decision
Decision Matrix:
Choose $250-400 if:
- • You can't comfortably afford more than $500 at short notice
- • You're a new driver or have recent claims
- • Peace of mind is more valuable than premium savings
Choose $500-750 if:
- • You have $1,000+ in accessible emergency funds
- • You're a safe driver with good history
- • You want balanced risk and savings
Choose $1,000+ if:
- • You can comfortably cover $1,500+ unexpected expenses
- • You're an experienced driver with 5+ years no claims
- • You want maximum premium savings
Special Situations and Exceptions
When Excess is Refunded
In certain situations, you may get your excess back:
- •
Not-At-Fault Claim (Recovered)
If you initially pay excess but your insurer later recovers costs from the at-fault party, your excess is refunded
- •
Stolen Vehicle Recovered Undamaged
If your stolen vehicle is found in good condition before settlement, excess may be refunded
- •
Claim Cancelled
If you decide not to proceed with a claim after paying excess to assess damage
Multiple Claims
You pay excess for each separate claim:
Example: You have two accidents in one year causing $3,000 and $4,500 damage. Your excess is $500.
- Claim 1: You pay $500 excess
- Claim 2: You pay $500 excess again
- Total excess paid: $1,000
Excess-Free Claims
Some insurers offer special features:
- First claim free: No excess on your first claim in X years
- Windscreen excess waiver: No excess for windscreen repairs (not replacement)
- Not-at-fault waiver: No excess when other party is clearly at fault and insured
Reducing Young Driver Excess
While you can't eliminate compulsory young driver excess, you can reduce its impact:
- • Restrict policy to drivers 25+ only (removes young driver excess entirely)
- • Some insurers offer graduated excess (lower after 12 months claim-free)
- • Consider comprehensive driver training courses (some insurers offer discounts)
- • Shop around - young driver excess varies significantly between insurers ($200-800)
Excess Calculator Examples
Use these examples to understand how to calculate your potential excess payment:
Scenario 1: Experienced Driver, At-Fault
Driver Profile:
- • Age: 35 years
- • Experience: 15 years licensed
- • Accident: Backed into another car
- • Damage: $4,200 to own vehicle
Excess Calculation:
Outcome: Insurance pays $3,700 to repairer. You pay $500 when collecting vehicle.
Scenario 2: Young Driver, At-Fault
Driver Profile:
- • Age: 20 years
- • Experience: 2 years licensed (Restricted then Full)
- • Accident: Lost control on wet road
- • Damage: $7,800 to own vehicle
Excess Calculation:
Outcome: Insurance pays $6,400 to repairer. You pay $1,400 when collecting vehicle.
Note: Young driver excess alone nearly triples the basic excess!
Scenario 3: Vehicle Written Off (Theft)
Situation:
- • Age: 42 years
- • Vehicle stolen and not recovered
- • Market value: $22,000
- • Finance owing: $15,000
Excess Calculation:
Settlement Calculation:
Outcome: After finance is paid, you receive $6,500 to put toward a replacement vehicle. Effective excess cost: $500.
Want to Calculate Your Potential Premium and Excess?
Use our car insurance calculator to see how different excess amounts affect your premium, or get free quotes from multiple insurers showing exact excess options and premiums.
Frequently Asked Questions
Can I change my excess amount mid-policy?
Yes, most insurers allow you to change your voluntary excess at any time. Your premium will be adjusted accordingly (pro-rated for the remaining policy period). However, you cannot change your excess after an incident has occurred to reduce your payment.
Do I pay excess if my parked car is hit?
It depends. If the other driver is identified and insured, most insurers waive your excess. If it's hit-and-run with no identified driver, you'll need to pay your excess. This is why dashcams and parking in visible, well-lit areas are valuable.
What if I can't afford to pay my excess?
Most repairers require excess payment before releasing your vehicle. If you genuinely cannot pay, discuss options with your insurer - some may arrange payment plans, though this is not guaranteed. This situation highlights the importance of choosing an excess you can actually afford.
Is excess tax deductible if my car is for business?
Generally yes, if your vehicle is used for business purposes, insurance excess payments may be tax deductible as a business expense. However, this depends on your specific tax situation. Consult your accountant or tax advisor for personalized advice.
Do I pay excess for windscreen claims?
Most comprehensive policies have a separate, lower windscreen excess (typically $0-150) rather than your standard excess. Some insurers offer $0 excess for repairs (rather than replacement). Check your policy schedule for your specific windscreen excess.
Can I remove young driver excess?
No, young driver excess is compulsory and based on age/experience. You cannot remove it by increasing your voluntary excess. The only way to eliminate it is to exclude drivers under 25 from your policy entirely, or wait until they turn 25.
What happens if repair costs are less than my excess?
If damage costs less than your excess (e.g., $300 damage with $500 excess), there's no point claiming. You'd pay the full $300 yourself anyway, plus the claim would go on your record and potentially increase future premiums. Only claim if damage exceeds your excess by a worthwhile margin.
Still have questions about insurance excess? Visit our comprehensive FAQ page or contact us for personalized guidance.
Find Your Perfect Balance
Compare quotes with different excess options and see exactly how much you could save on your premium while understanding your out-of-pocket risk.