Have you ever faced damage or loss that didn't seem worth claiming on your insurance? Many policyholders find themselves in this situation when the repair costs are lower than their insurance excess. Although it may be tempting to file a claim anyway, there are good reasons to think twice before doing so.
This article will explain what happens when your claim falls under your excess amount. We'll look at the claims process, how excess works, the financial implications of claiming below your excess, and your options if faced with minor damage or loss.
Understanding Excess in Insurance
Before diving into the implications of small claims, let's look at what excess is and how it works in insurance policies.
What Does Insurance Excess Mean?
Excess, sometimes called a deductible, is the amount you must pay towards any claim on your insurance policy. For example, if your excess is $500 and you make a claim for $1,500, you must pay the first $500 yourself.
The insurer will then cover the remaining $1,000. So even though your loss was $1,500, your payout will only be $1,000 due to the excess.
Types of Excess
There are two main types of excess in insurance:
- Compulsory excess - This is a fixed amount set by the insurer when you take out a policy. All policyholders will have the same compulsory excess.
- Voluntary excess - This is an optional extra excess that you choose to add to your policy. Opting for a higher voluntary excess lowers your premiums.
The Role of Excess in Insurance
Excess serves several important purposes in insurance:
- It discourages claims for small or frivolous losses that cost less than the excess amount. This helps insurers reduce administrative costs.
- It provides a form of risk management for insurers by reducing their payout exposure.
- It allows policyholders to reduce their premiums by opting for higher voluntary excess amounts.
So in summary, excess helps incentivize policyholders to only claim when necessary and enables insurers to offer lower premiums due to reduced risk.
Making a Claim When Your Loss is Below the Excess
Now that we’ve covered the essentials of excess, let’s look at what happens if you need to make a claim that falls under your policy’s excess amount.
Can You Claim for Less Than the Excess?
In most cases, you can technically lodge a claim for any amount of loss or damage. However, you will need to pay the excess regardless of the claim size.
So if your excess is $500 and your claim is only $300, you would still need to pay the full $500 excess and would receive no payout from the insurer.
Should You Claim for Less Than Your Excess?
Whether or not to claim depends on several factors:
- Will claiming impact your no claims bonus or premiums?
- Is the damage likely to deteriorate without repairs?
- Do you have other excess insurance options?
- Can you comfortably afford the repairs yourself?
If claiming will negatively impact your policy or the damage is very minor, you may wish to avoid claiming and pay for repairs out of pocket.
The Claims Process When Under Excess
If you do decide to claim, the process will be the same as making any other insurance claim:
- Notify your insurer: Start by contacting your insurer and explaining the situation. Provide details of what damage or loss has occurred.
- Get repair cost estimates: Your insurer will advise you to get quotes from repairers or suppliers to find out the estimated cost.
- Decide whether to proceed: Once you have the repair cost estimate, you can confirm if you wish to proceed with the claim or withdraw it.
- Pay excess: If you proceed, you’ll need to pay your excess upfront directly to the repairer or supplier.
- Get repairs: The insurer will then cover the remaining repair costs (if any) over and above your excess.
So in summary, although you can claim for losses under your excess, you’ll need to pay the full excess amount and will receive $0 payout from the insurer.
The Financial Impact of Claiming Below Your Excess
Aside from receiving no immediate payout, there can be wider financial implications from claiming for minor repairs or losses. Let’s look at how this can impact your premiums and future coverage.
How Claiming Below Excess Impacts Your Premiums
One key downside is that claiming can drive up the cost of your insurance, even for small claims under your excess. Here’s how:
- Claims can reduce your no claims bonus and loadings. This means you lose discounts on your premium.
- Too many claims can put you in a higher risk category, increasing your base premium.
- Insurers may increase your compulsory excess after a claim. This also pushes up premiums.
While one minor claim is unlikely to have a huge impact, frequent small claims over time can really add up.
Weighing Up the Costs and Benefits
To avoid premium increases, it’s important to analyze the costs and benefits before claiming for minor damage.
Consider these questions:
- How much will your premiums likely increase after claiming?
- Will you lose any no-claims bonuses or excess-free privileges?
- Does the repair cost significantly exceed the excess amount?
- Can you comfortably afford to pay the repair cost yourself?
If the excess is close to the repair cost and your premiums will increase substantially, you may be better off not claiming.
Alternatives to Making Small Claims
Some other options to explore before claiming for minor damage include:
- Use separate excess insurance - This covers your compulsory excess for future claims.
- Negotiate a reduced excess - You can ask the insurer to reduce your voluntary excess temporarily.
- Withdraw your claim - If the quotes reveal limited damage, you can withdraw your claim.
- Pay out of pocket - For very minor damage, it may be cheapest to pay yourself.
Taking these steps can prevent your premiums from rising over small claims in the long run.
Key Takeaways: To Claim or Not to Claim?
Dealing with loss or damage below your excess can be a tricky decision. Here are some key tips to recap:
- You can technically claim for any amount, but won't receive a payout below your excess.
- Claiming could still increase your premiums and impact future coverage.
- Carefully weigh up the immediate repair costs against potential premium increases.
- Consider excess insurance, negotiating with your insurer, withdrawing claims or self-funding repairs.
- If the damage is minor, it may be best to avoid claiming and pay yourself.
- But if repairs are urgently needed and costs exceed your excess, go ahead and claim.
In summary, it comes down to analyzing the costs, benefits, insurer response and affordability before deciding whether to claim. Taking your time with this decision can avoid financial impacts down the road.
Want to share your experiences with claims below excess? Let me know in the comments!
Frequently Asked Questions About Claims Below Excess
What should I do if my claim is less than my excess amount?
You can still lodge a claim with your insurer. However, you will need to pay the full excess amount upfront and will not receive any payout from the insurer. Before claiming, weigh up whether it's worthwhile by getting repair quotes, considering potential premium increases, and looking at alternatives like excess insurance or self-funding repairs. Only proceed if the damage requires urgent repairs that exceed your excess amount.
How much will my premiums go up if I claim below my excess?
It depends on your insurer, but typically expect at least a 10-20% increase if you claim below your excess. You may also lose any no-claims discounts and be moved into a higher risk category. Minor claims can drive up premiums over time through reduced discounts and loadings. To minimize the impact, consider excess insurance to cover your compulsory excess on future claims.
What are some alternatives to claiming for minor damage or loss?
Rather than claiming, you could:
- Pay for repairs yourself if the damage is relatively minor. This avoids premium increases.
- Negotiate a one-time reduction in your voluntary excess to lower the amount you pay upfront.
- Take out specialized excess insurance that reimburses you for the compulsory excess amount if you do need to claim down the track.
- Withdraw your claim if the repairer's quote is low and you can afford the costs yourself.
- Have the insurer reassess any repair quote if you feel it seems inflated compared to the damage.
- Get a second opinion from another repairer before deciding to claim or not.
My repair quote is $250 more than my excess. Should I claim?
In this case, claiming could be worthwhile because the repair cost significantly exceeds your excess. You'll still need to pay the full excess amount yourself, but the insurer will cover the remaining $250 repair cost. Before claiming, make sure to consider potential premium increases and impact on any no-claims bonus when deciding. If you can easily afford the $250 yourself, then paying it may be preferable to avoid claiming.
What happens if I lodge multiple small claims below my excess?
Frequent claims below your excess amount will likely have a compounding effect on premiums. Even if the individual claims are small, insurers will view multiple claims as high risk. This could move you into a more expensive policy tier. To avoid this, try to only claim when absolutely necessary. Instead consider self-funding repairs or using separate excess insurance where possible. Too many claims below excess can become very costly long-term through rising premiums.
If my excess is $750 and the repair quote is $600, what would I pay?
With a $750 excess, you must pay the first $750 of any claim in full. Since the quote is $600, this falls under your excess. So in this scenario, you would need to pay the full $750 excess, even though the quote is only $600. You would receive no reimbursement from the insurer. This demonstrates why it's often not worthwhile claiming when the repair cost is below your excess, since you get no payout but still pay the full excess.
Let me know if you have any other questions!
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