Demystifying Insurance Excess
Choosing the right insurance excess can feel confusing. Your excess is the amount you pay towards a claim before your insurer contributes.
Understanding how excess works helps you balance your annual premium against what you would need to pay if something goes wrong.
Quick summary
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An excess is the amount you pay when you make a claim.
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A higher excess usually lowers your annual premium.
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A lower excess usually increases your premium.
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An excess applies per incident.
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The right choice depends on your financial situation and risk tolerance.
What is an insurance excess?
An insurance excess is the portion of a claim you pay yourself.
For example, if you have a $1,000 excess and make a $10,000 claim, you pay $1,000 and your insurer pays the remaining $9,000.
Excess applies per incident. If multiple separate incidents occur, more than one excess may apply.
High excess vs low excess
When selecting an excess, you are balancing two costs:
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Your yearly insurance premium
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Your potential out-of-pocket cost at claim time
High excess
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Lower annual premium
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Higher payment if you make a claim
Low excess
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Higher annual premium
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Lower payment when you claim
A higher excess can work well if you are financially able to fund the excess and want to protect yourself mainly against major events.
How insurers calculate excess levels
Insurers use claims data and risk modelling to determine how excess levels affect premiums. They analyse:
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How often claims occur
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The average size of claims
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Risk trends in different regions
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Historical claims behaviour
The balance between premium reduction and excess size is based on these numbers. While some policyholders expect larger premium discounts for higher excesses, insurers must maintain a balance between premiums collected and claims paid.
When does a higher excess make sense?
Insurance is most valuable for significant events such as fires, floods or earthquakes.
Some property owners prefer a higher excess, such as $1,150 or $2,000, because they:
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Are less concerned about small claims
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Want lower annual premiums
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Have the savings available to fund the excess
For landlord or owner-occupied properties, the highest available excess option is currently $2,000.
A practical example
Consider an Auckland property with a $700,000 replacement value.
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With a $400 excess, the annual premium may be around $2,000.
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With a $2,000 excess, the premium may reduce to around $1,500.
That saves $500 per year. However, if you make a $10,000 claim:
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With a $400 excess, you pay $400.
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With a $2,000 excess, you pay $2,000.
In that scenario, the higher excess leaves you approximately $1,100 worse off after factoring in the premium saving.
Over time, if you rarely claim, the savings from a higher excess can accumulate. The key question is whether you can comfortably afford the excess if a claim occurs.
Is choosing a high excess a form of self-insurance?
Yes, in a sense.
Selecting a higher excess means you are sharing more of the risk with your insurer. You are effectively self-insuring smaller losses while relying on insurance for large, financially stressful events.
Your personal circumstances matter
The right excess depends on:
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Whether you are a homeowner or landlord
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Your cash flow and savings
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The age and condition of your property
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Your claims history
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Your tolerance for financial risk
New homeowners or landlords may prefer lower excesses for certainty. More experienced property owners, particularly those with multiple properties, may choose higher excesses to manage long-term premium costs.
How data can help your decision
Claims probability plays a role in choosing an excess.
For example, if you own 10 properties, statistics suggest you may expect at least one reasonable claim each year across the portfolio.
Understanding the following can help you make a more informed decision about your excess level:
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Local weather patterns
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Crime rates
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Property condition
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Historical claims data
Frequently asked questions about insurance excess
Does excess apply per claim?
Yes. An excess is applied per incident. If multiple incidents occur, more than one excess may apply.
Does choosing a higher excess always save money?
It reduces your premium, but may cost more overall if you claim frequently.
What is the highest excess available?
The highest available excess for landlord and owner-occupied properties is currently $2,000.
Should landlords choose a higher excess?
Some landlords with multiple properties prefer higher excesses to reduce premiums, but this depends on financial flexibility.
Making a confident decision
Insurance excess is about balance. It is not about choosing the lowest premium or the lowest out-of-pocket cost. It is about selecting an amount that matches your financial comfort level and long-term strategy.
Understanding how excess works allows you to make a clear, informed decision rather than guessing.
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