Raising Your Car Insurance Excess: Is It Worth the Risk?

With car insurance premiums on the rise, many Australians are looking for ways to lower their ongoing costs. One popular strategy is to raise the insurance excess – the amount you pay out-of-pocket before your insurer steps in. But is it the right move for you? While it can lead to lower premiums, there are risks involved. In this blog, we explore whether raising your insurance excess is a good idea and the potential consequences if you need to make a claim.

What is an Insurance Excess?

Simply put, an insurance excess is the amount of money you must pay upfront when making a claim on your car insurance policy. For example, if your excess is $500 and you’re in an accident, you’ll need to pay $500 before your insurer covers any repair costs.

However, the excess doesn’t always apply in the same way. Some policies require you to pay an excess regardless of who’s at fault, while others might waive it if the accident is caused by another driver and you can provide their details. Additionally, some policies may include an age-based excess, applying only if the driver at fault is under the age of 25.

Why Raise Your Insurance Excess?

The idea behind raising your excess is simple: lower premium costs. By increasing your excess, your insurer assumes you’ll be covering more of the cost of a claim, which can significantly reduce your premium.

For instance, if you're the owner of a Subaru Outback, raising your excess from $600 to $2000 could result in nearly a 30% reduction in your premium, from $2014 to $1452 annually. This can be a substantial saving, especially if you’re confident in your driving abilities and don't expect to make frequent claims.

When is Raising Your Excess a Good Idea?

Raising your excess can be an effective strategy for lowering ongoing insurance costs, particularly if you have the financial ability to handle the higher excess in the event of an accident. If you’re not likely to make claims often – based on your driving history or vehicle condition – the lower premium could make the extra upfront cost worth it.

However, this strategy depends on your personal financial situation. If you don’t have enough savings to cover a higher excess if something goes wrong, the savings in premiums might not be worth the potential financial strain. Financial hardship is a real concern for many, and you should ensure you can afford the excess before making any changes.

What Happens if You Can’t Afford the Excess?

A key concern with raising your insurance excess is the possibility of not being able to pay the higher amount in the event of a claim. What happens if you’re involved in an accident and can’t cover your excess upfront?

Good news: insurers have processes in place to support customers experiencing financial hardship. According to the General Insurance Code of Practice, insurance companies must provide options for customers who can’t pay their excess. This could include:

• Deducting the excess from the claim amount
• Offering a reduced excess
• Allowing payment in instalments

If you find yourself in this situation, it’s essential to contact your insurer directly. You can discuss available options and work out a solution, such as setting up a payment plan. Insurers can’t deny your claim solely because you can’t pay your excess upfront, but it’s vital to communicate your circumstances early to avoid any delays or complications.

What If Your Insurer Denies Your Claim?

In the rare case where an insurer refuses to accept a claim due to the inability to pay the excess, it’s important to know your rights. First, you should contact your insurer’s complaints team to try to resolve the issue. If that doesn’t work, you can take the matter to the Australian Financial Complaints Authority (AFCA) – an easy and accessible option for getting help with disputes.

If you’re in financial hardship, you also have the right to negotiate with your insurer. You can request an extension to pay the excess or even ask for the amount to be deducted from your settlement. It’s always worth having a conversation with your insurer to explore these options.

Is Raising Your Excess Worth It?

Ultimately, whether or not you should raise your car insurance excess depends on your individual situation. If you can afford the higher excess and are comfortable with the potential out-of-pocket costs, raising it could be a smart way to save on premiums.

However, if you’re unsure about your ability to pay the higher excess in the event of an accident, or if your financial situation is uncertain, it might be safer to stick with a lower excess. As Vicki Staff from Financial Counselling Australia points out, “One of the first things we say to people is to increase your excess before you look at giving away insurance altogether.”

Key Takeaways

• Higher excess = lower premiums, but only if you can afford the upfront cost in case of a claim.
• If you can’t afford the excess, insurers have hardship processes in place, and they can offer payment arrangements.
• Your driving history can help you decide if raising your excess is a risk worth taking.

Before deciding to raise your excess, weigh the savings against the potential financial impact of an accident. And always check with your insurer about their options for customers facing financial difficulty – you don’t want to be caught unprepared in the event of an accident.

If you're in the market for car insurance, it’s worth shopping around and discussing these options with your insurer to find the balance between affordability and peace of mind.