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How does an excess work?

Insurance is full of jargon, and one piece of jargon that we use often is ‘excess’. Insurers assume that their clients know what an excess is and how it works. This article will give you a clearer understanding of excesses.

What is an Excess?

An excess is the contribution that you are required to make towards your claim. This is deducted from the loss and it is a form of self insurance. At initio you have the choice between a $400, $650, $1,150 and $2,000 excess. If you can afford to contribute more towards claims, and want cheaper premiums, you can take a higher excess. Rather than pay the excess to the insurer, the insurer will usually deduct your excess from the cash settlement or from the first repairer payment it makes. You are then responsible for settling this account directly with the repairer.

Do all losses have the same Excess?

No, not all losses have the same excess. Some policy sub-limits have higher excesses, these will be identified on your policy schedule. For example, while your nominated excess might be $400, the excess for the deliberate damage by tenants extension is $500 for each event.

What do you mean by each event?

An event is defined as an event (yes the policy defines a word with the same word!) or series of events arising from one source or original cause. Where a single claim is made up by multiple events, multiple excesses would apply.

Still confused?

Lets say a dog defecated in multiple rooms of your house. You could look at this two ways; you could say that it is multiple events because the dog relieved himself multiple times (multiple excesses would apply). Or you could say that is is a series of events arising from one source or original cause (being the dog). In this claims scenario we would consider the period of time that the damage took place. If the series of events had been happening over the period of the tenancy then multiple excesses would apply (likely an excess per room). However, if the damage took place in a very short period of time, say the dog was locked inside for a day, only one excess would apply.

Why do I have to pay an excess?

One reason for an excess is to eliminate the administration costs associated with minor or small claims. By making the client responsible for the first portion of a claim, small claims can be avoided. Another reason why insurers charge an excess is to try and prevent fraudulent claims. People are less likely to lodge a false claim when they are responsible for payment of an excess.

If you have any further queries regarding your excess and how it is applied, feel free to send an email with your query to info@initio.co.nz.