Excesses: what, when and, most importantly, why

‘Excess’. It’s one of those insurance-y words that makes some people go “Huh?” and makes others get red and shouty.

It’s easy to get frustrated when something happens and you’re asked to fork out. That’s why you have insurance right? We get it.

So, here we’re explaining not only what an excess is, but WHY you have to pay them when you make a claim.

What is an excess?

An excess is the bit of money you contribute to an insurance claim.

There are a few types of excesses. The most common one is what we call your ‘basic excess’ or ‘standard excess’. This is the excess you choose when you’re buying your policy. It applies to claims you make under the policy (though sometimes you won’t have to pay one at all — but we’ll get to that later).

For our Car Insurance policies, you can choose a basic excess between $500 and $5,000. For Huddle Home & Contents Insurance policies, you can choose an excess between $250 to $1,000. Travel Insurance is a bit different. You don’t need to choose with Huddle Travel Insurance as it’s fixed.

Some types of policies may have an additional excess that apply on top of the standard or basic excess. For example, additional excesses apply to some types of drivers under a Car Insurance policy — like drivers under 25.

Here’s an example of when an excess would apply:

Let’s bring in our mate, Steve. Steve is 32 and has a Huddle Comprehensive Car Insurance policy (go Steve!). He’s driving home from work and a freak hail storm hits. His lovely new car looks a bit like Swiss cheese now, so he grabs his phone and submits a claim through the Huddle App. His claim is accepted online and told where to take his car for for an assessment.

It later turns out the repairs to Steve’s car will cost $4,500. His basic excess is $500 and no additional excesses apply as he’s an experienced driver. So, he’ll pay the first $500 of the repair costs and we’d cover the remaining $4,000.

But why do you have to pay an excess at all?

Our mate Steve is a bit miffed. He’s very close to writing a review online IN ALL CAPS (just to show how red and shouty he is) because it’s not like he caused the hail and what’s the point of insurance if you have to fork out anyway??

The simple answer is that excesses keep insurance costs down for everybody.

How? Excesses lower the cost of premiums in three ways:

1. Let’s imagine that everyone’s premium (the money paid for insurance policies) goes into a pot. The money in that pot is used to pay Steve’s claim. If we didn’t charge him an excess, $500 more would need to come out of that pot, which means everyone would have needed to put a little more into the pot to begin with. Multiply that little bit more money by all the people who need to make a claim, and that’s a lot more money that needs to go into the pot. Which means everyone’s premium would be a lot higher.
2. Having an excess means that we don’t get bombarded with lots of little claims that raise costs. Don’t get us wrong, we aren’t saying claiming is bad, but small claims of $50 or $100 often cost more to administer than the amount of the claim. And higher administration costs mean higher premiums.
3. Finally, if Steve knew he could claim whenever he wanted without having to pay an excess, he might not take the same care of his car. More risk means higher premiums. To keep insurance costs down for everyone, we want to encourage people to take responsibility for their things, so that we can be there to help people when they really need us.

When mightn’t you have to pay an excess?

There are some situations in which you may not have to pay an excess at all. For example, if the damage to Steve’s car had been caused by another driver and he was able to give us the driver’s details, he wouldn’t have had to pay anything.

What’s the difference between this and the hail, you ask? If we have the details of the driver who caused damage to Steve’s car, we can hit them up (or their insurance company) for the damage, so no money comes out of the Huddle members’ pot at all.

Unfortunately, in our experience, the chances of hail chipping in to pay for the damage it has caused are slim to none.

Disclaimer

Any advice is general in nature and does not take your personal circumstances into account.