When dealing with a new car insurance policy, you'll be faced with the question of whether to go for a higher excess or a low one. It might make sense to increase your excess as it will reduce your premium but if you get into an accident will you be able to afford the higher excess costs in a lump sum?
Choosing between a high excess and a low excess is never easy. It's up to you to identify the pros and cons and determine the amount of risk you're willing to take. Consider these few factors to make the right decision.
What is an excess?
First off, let's understand what an excess really is. When it comes to car insurance policies, the excess is the amount you pay out of your pocket to cover the costs of damage, after which your car insurance company covers the rest of the amount. It’s a way of you sharing some of the risk of an accident in order to reduce your payment today.
For instance, if you set your policies excess to $1000 and have a car accident that costs $3,000, you will need to pay $1000 out of pocket and your insurance company will cover the remaining $2000.
If you’re not at fault and the other party has caused the accident than you may not have any out of pocket at all.
Factors to consider
Do you have an emergency fund?
You will need to consider the amount of money you can afford in case of an emergency before deciding on an excess amount. While a higher excess might save you some money, it's not going to be beneficial if you do have to make a claim and can't afford to pay it.
Do you drive a lot or sometimes at risk of an accident?
The more you drive the higher the chance that you may be involved in a collision, even if you do all of the right things and are considered a safe driver. Therefore it may be better to opt for a lower excess. This way, you'll pay less if you need to make a claim although your premium will be higher in the short term.
What level of risk are you comfortable with?
Generally, a higher excess is considered higher risk but it might save you money right now. If you are an infrequent driver and mostly have your car safely stored then the level of risk may be low and the savings could be great.
What's the value of your vehicle?
Your vehicle's value can also impact your decision. If you drive a prestige or more expensive vehicle, it will cost more to have insured, so a high excess could help with affordability of insurance as your premium may be reduced significantly.
Are you financing or leasing your car?
If you are financing or leasing your car, choosing a lower excess could work in your favour. This generally provides better coverage. Should your vehicle be unrepairable you may be liable for the full cost owing to the finance or leasing company, a lower excess and the help of agreed value will make sure you’re not left with a massive out of pocket cost.
Have you shopped around for quotes?
Shopping around for quotes from different car insurance companies will allow you to get an idea of which policy has an excess that works best for you. PD Insurance has a Flexible excess option which will allow you to obtain a cheap car insurance policy with an excess that suits your needs.
Have you taken advantage of car insurance discounts?
If your goal is to save more money, there may be other ways to reduce your costs. With PD Insurance you may be eligible for other car insurance discounts that will allow you to get the savings you need to keep your excess low.
Making a decision
Choosing a car insurance excess is entirely up to you. Some people feel comfortable with a lower excess while some others prefer the savings now that a higher excess can provide. If all of this sounds confusing, it's perfectly alright. Car insurance can be a tricky area to understand, which is why we are here to assist you. Start by getting a quote and we’ll be right there to help, or get in touch with the team at PD Insurance to learn more about excess and what the right choice is for you.