Exactly how much insurance excess you need
One of the most important parts of your insurance policy is the amount you’re specifying as excess. Yet it’s also one of the least well-understood parts.
So how much excess should you be taking on?
We’re going to take a look at the ins and outs of excess, so you can understand the amount that best suits your policy, coverage and circumstances.
What is excess?
Most insurance policies will include an excess, which is basically the amount the person insured has to pay if they decide to make a claim on something.
In a sense, it can be seen as a way of accepting a degree of risk yourself. An example of an excess being applied would be if you had car insurance and your vehicle was damaged. If the cost of repairs was $2,000 and you had a $400 excess, you would be required to pay the first $400 to the mechanic and your insurer would foot the remainder of the bill.
Types of excess that are available
It’s important to note that not every policy has the same type and level of excess, and they don’t apply in all the same scenarios and in many ways this is the sort of thing that should be considered when you’re shopping around between policies.
Most policies have a standard and voluntary excess. The standard excess applies to every claim you make, but the voluntary excess is assumed yourself. In some circumstances, if you nominate a higher voluntary excess you can end up paying lower premiums.
How much should I have?
Well, it basically depends on your circumstances and the amount of risk you’re willing to assume. In certain circumstances it can make sense to nominate a higher level of excess to bring your premiums down to a more manageable level, but it’s equally as important to consider the fact that when you do make a claim you will end up having to pay more.
In the end of the day the best way to figure out the level of excess for you is crunching the numbers, comparing your policies and consulting a financial adviser. In the right circumstances it can make a lot of sense, but it can also leave you with a big bill to foot.
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