Excess is one of the most important features of your insurance policy, yet it’s often misunderstood until claim time. Whether you’re insuring your home, contents, or vehicle, understanding how excess works can save you money and prevent unwelcome surprises when you need to make a claim.

In simple terms, excess is the amount you agree to pay towards a claim before your insurer covers the rest. It’s a cost-sharing mechanism that affects both your premium and your out-of-pocket expenses when something goes wrong. According to ASIC MoneySmart, choosing the right excess amount is a balance between keeping premiums affordable and ensuring you can cover the excess if you need to claim.

This guide walks you through everything you need to know about excess on Australian home and vehicle insurance, from the different types you’ll encounter to practical strategies for choosing the right amount for your circumstances.

What You Will Learn

In this article, you’ll discover how excess works on both home and car insurance policies in Australia. You’ll learn about the different types of excess (basic, voluntary, age-based, and special excesses), when you’re required to pay it, and when you’re not. You’ll also gain practical guidance on choosing the right excess amount to balance premium savings against potential claim costs, along with common mistakes to avoid when managing your excess.

Step 1: Understanding What Excess Is

Excess (sometimes called a deductible in other countries) is the dollar amount you must pay when you make an insurance claim. Your insurer then covers the remaining approved costs of your claim, up to the sum insured or agreed value on your policy.

For example, if you have a car accident that causes A$5,000 in damage and your excess is A$600, you pay the first A$600 and your insurer pays the remaining A$4,400. The excess applies per claim, not per policy year, so if you make multiple claims in one year, you’ll typically pay the excess each time.

The excess serves several purposes. It discourages small, frequent claims that would drive up premiums for everyone. It also gives you some control over your premium: choosing a higher excess usually means paying a lower premium, while a lower excess typically results in a higher premium.

Your excess amount is clearly stated in your Product Disclosure Statement (PDS) and on your Certificate of Insurance. Always read these documents carefully so you know exactly what you’ll need to pay if you claim.

Step 2: Types of Excess on Australian Policies

Australian insurance policies typically include several types of excess that may apply to your claim. Understanding each type helps you calculate your total excess obligation.

Basic excess is the standard excess amount that applies to all claims on your policy. This is set by your insurer based on factors like your location, the asset being insured, and your claims history. For home insurance, basic excess commonly ranges from A$500 to A$1,000. For car insurance, it often ranges from A$400 to A$800, though this varies significantly between insurers and individual circumstances.

Voluntary excess is an additional amount you choose to add to your basic excess in exchange for a lower premium. You might select a voluntary excess of A$250, A$500, A$1,000, or more. This stacks on top of your basic excess, so if your basic excess is A$600 and you add a A$500 voluntary excess, your total excess becomes A$1,100.

Age-based excess applies to car insurance when the regular driver is under a certain age (typically under 25) or when an inexperienced driver (someone who has held their licence for less than two years) is driving. This can add anywhere from A$400 to A$1,500 or more to your excess. Age-based excesses recognise that younger and less experienced drivers statistically have higher accident rates.

Special excesses may apply in specific circumstances. For example, some home insurance policies have a higher excess for claims involving unspecified jewellery, or water damage. Car insurance policies might have a special excess if someone not listed on the policy drives your vehicle, or if you’re making a claim for windscreen or glass damage (which is sometimes lower than the standard excess, or even nil).

When you make a claim, multiple excesses can apply simultaneously. Always check your PDS and ask your insurer to confirm the total excess before proceeding with a claim.

Step 3: How Excess Works on Home Insurance

Home insurance policies cover your building (home insurance) and your belongings (contents insurance), or both together in a combined policy. Excess applies to each claim you make under the policy.

When you experience an insured event such as a fire, storm damage, or burglary, you lodge a claim with your insurer. Once the claim is approved and you’ve provided any required documentation or quotes, you’ll need to pay your excess. Some insurers deduct the excess from your claim payout, while others require you to pay it directly to the repairer or tradesperson.

For home claims, the excess is typically paid once per event, even if that event damages both your building and contents. However, policy terms vary, so always check your PDS. Some policies may charge separate excesses for building and contents if you make claims under both sections.

If your home is damaged and you need to make multiple claims for unrelated events (for example, storm damage in January and a break-in in March), you’ll pay the excess for each separate claim. The excess doesn’t reset or accumulate over the policy year; it applies per claim event.

Some insurers offer reduced or nil excess for specific types of claims. For instance, you might not pay excess for certain defined natural disasters in some areas, or for emergency repairs up to a certain limit. These features vary widely between policies, so review your cover carefully.

Step 4: How Excess Works on Car Insurance

Car insurance comes in several levels: Compulsory Third Party (CTP, your green slip in NSW), third party property damage, third party fire and theft, and comprehensive. Excess typically applies to comprehensive policies and sometimes to third party fire and theft policies, but not to CTP.

When you make a comprehensive car insurance claim, whether for an accident you caused, storm damage, theft, or vandalism, you’ll need to pay your excess. The total excess depends on your basic excess, any voluntary excess you’ve chosen, and whether any additional excesses apply (such as age-based or unlisted driver excesses).

If you’re in an at-fault accident (meaning you’re responsible for the collision), you’ll pay your full excess to have your vehicle repaired. If your insurer successfully recovers the costs from the other party’s insurer, you may get your excess refunded, but this depends on your policy terms and the success of the recovery process.

In a not-at-fault accident where the other party is clearly responsible and their details are known, many insurers waive your excess entirely. However, you typically need to provide the other driver’s full details, including name, contact information, and insurance details, and the other party must accept liability or your insurer must successfully pursue recovery.

For comprehensive car insurance, windscreen and glass claims often have a reduced excess or no excess at all, particularly if you use the insurer’s approved repairer network. This is a valuable feature that can save you hundreds of dollars on glass replacement.

According to the Insurance Council of Australia, understanding when you will and won’t be charged excess is crucial before lodging a claim. If the repair cost is less than your excess, claiming may not be worthwhile, as you’ll pay the full cost anyway and may affect your claims history.

Step 5: When You Pay Excess and When You Don’t

Knowing when excess applies saves you from unexpected costs and helps you make informed decisions about whether to claim.

You typically pay excess when:

  • You’re making an at-fault car insurance claim
  • You’re claiming for damage to your home or contents from an insured event
  • You’re claiming for theft, vandalism, or fire damage on your car or home
  • The claim is under comprehensive cover and you cannot recover costs from another party
  • Multiple excesses apply (basic, voluntary, age-based) and they stack together

You may not pay excess when:

  • You’re in a not-at-fault car accident and can provide full details of the responsible party
  • You’re making a windscreen-only claim under many comprehensive car policies
  • Specific policy features waive the excess (some insurers offer one free windscreen claim per year, or emergency home repair allowances)
  • Your insurer recovers the full claim amount from a third party (you may receive a refund of excess already paid)
  • The claim falls under a special category defined in your PDS, such as certain natural disaster claims in designated areas

The timing of excess payment varies. Some insurers deduct it from your claim settlement, paying you the claim amount minus the excess. Others require you to pay it upfront to the repairer or supplier before work begins. A few insurers bill you separately for the excess amount. Check with your insurer when you lodge your claim to understand the payment process.

If you’re unsure whether excess will apply or how much you’ll need to pay, call your insurer before proceeding with a claim. They can confirm the total excess amount and explain the payment process for your specific situation.

Step 6: Choosing the Right Excess Amount

Selecting your excess is a balancing act between premium savings and financial preparedness. A higher voluntary excess reduces your premium, but it also means you’ll pay more out of pocket if you claim.

Start by assessing your financial buffer. Can you comfortably pay A$1,000, A$1,500, or even A$2,000 if you need to make a claim tomorrow? If not, choose a lower excess even if it means a higher premium. The purpose of insurance is to protect you from costs you cannot afford, so your excess should be an amount you can realistically pay without financial stress.

Consider your claims likelihood. If you have a long history of claim-free years and you’re a careful driver or homeowner, a higher excess might make sense. The premium savings compound over time, and if you rarely claim, you may never actually pay the excess. However, if you live in a high-risk area for storms or you have a new driver in the household, a lower excess might be wiser.

Calculate the premium difference between excess options. Get quotes with different voluntary excess amounts and see how much you actually save. Sometimes the premium reduction is substantial, making a higher excess worthwhile. Other times, you might save only A$50 per year by increasing your excess by A$500, which is poor value unless you’re extremely unlikely to claim.

Remember that excess amounts stack. If you have a A$600 basic excess, add a A$1,000 voluntary excess, and an age-based excess of A$800 applies, your total excess is A$2,400. Make sure you understand the maximum excess you could face in the worst-case scenario.

Review your excess choice annually when your policy renews. Your financial situation, driving circumstances, and risk profile change over time. An excess that made sense two years ago might not be appropriate now.

Practical Tips for Managing Your Excess

Keep your excess amount in an easily accessible savings account or emergency fund. Treat it like a deductible you’ve set aside for insurance claims. This way, if you need to claim, you can pay the excess immediately without financial strain or resorting to credit cards.

Before making a claim, get a quote for the repair or replacement. If the cost is only slightly more than your excess, consider paying out of pocket rather than claiming. Making a claim can affect your future premiums and claims history, even if the claim is successful, so it’s not always worth it for small amounts.

If you’re struggling to pay your excess after a claim, contact your insurer immediately. Some insurers offer payment plans or can work out alternative arrangements. Don’t delay lodging a legitimate claim just because you can’t pay the excess upfront; discuss your options with your insurer.

When comparing insurance policies, don’t just look at the premium. Compare the basic excess amounts too. A cheaper premium might come with a much higher basic excess, wiping out any savings if you need to claim. Look at the total cost of ownership: premium plus excess you might reasonably expect to pay.

Read your PDS thoroughly, particularly the sections on excess. Look for any special excesses that might apply to your situation, such as unoccupied home excesses if you travel frequently, or excesses for specific types of claims. Understanding these upfront prevents shock when you claim.

Common Mistakes to Avoid

Choosing an excess you can’t afford. The lowest premium isn’t always the best value if the excess is so high you couldn’t pay it in a genuine emergency. Your insurance should protect you, not create additional financial stress.

Not understanding total excess. Many people know their basic excess but forget about additional excesses that apply in specific circumstances. Always ask your insurer to confirm the total excess for your specific claim situation before proceeding.

Making small claims. Claiming for amounts just above your excess can affect your claims history and future premiums. Sometimes paying out of pocket is more cost-effective in the long term, as per guidance from Finder.

Failing to update your policy. If your financial situation improves or your risk profile changes, review your excess. You might be able to reduce your voluntary excess for a modest premium increase, giving you better protection.

Not reading the PDS. Every policy is different, and excess rules vary between insurers. Assuming your new policy works the same way as your old one can lead to costly surprises.

Forgetting about age-based excess. If you have a young or inexperienced driver in your household, make sure you understand the age-based excess and whether it applies when they drive. The total excess can be significantly higher than you expect.

Frequently Asked Questions

Do I get my excess back if I’m not at fault? If you’re clearly not at fault in a car accident and your insurer can recover the costs from the other party, many insurers will waive your excess or refund it if you’ve already paid. You typically need to provide full details of the other party. For home insurance claims, excess is generally not refundable, as there’s rarely another party to recover from.

Can I claim without paying the excess? No, excess is a condition of your policy. If excess applies to your claim and you don’t pay it, your claim won’t be processed or completed. The only exceptions are specific policy features that waive excess in certain circumstances (such as not-at-fault claims or windscreen-only claims where stated in your PDS).

Does excess apply to liability claims? If you’re making a claim under the third party property damage or liability section of your policy (for damage you caused to someone else’s property), excess usually doesn’t apply. Excess typically applies when you’re claiming for damage to your own insured property.

How many times do I pay excess in a year? You pay excess each time you make a separate claim. If you have three separate claim events in one year, you’ll pay the excess three times. However, if one event causes damage to both your building and contents, you usually pay the excess once (though policy terms vary).

Can I change my excess mid-policy? Some insurers allow you to adjust your voluntary excess at renewal or sometimes mid-policy, but you’ll need to contact them to request the change. Changing your excess will affect your premium, and the insurer may require underwriting approval.

Is there a maximum excess amount? There’s no legal maximum, but insurers generally cap excess at reasonable levels. However, when multiple excesses stack (basic plus voluntary plus age-based plus special), the total can reach several thousand dollars. Always check the maximum potential excess you could face.

Conclusion

Understanding excess is fundamental to making smart insurance decisions. It affects your premium, your out-of-pocket costs when you claim, and your overall financial protection strategy. By choosing an excess you can afford, understanding when it applies, and avoiding common mistakes, you can strike the right balance between premium cost and claim-time affordability.

Before you finalise any insurance policy, read the Product Disclosure Statement carefully, particularly the sections on excess. Calculate the total potential excess you might face, including any age-based or special excesses that could apply to your circumstances. Compare this across different insurers and policy options, not just the premium alone.

If you’re uncertain about the right excess level for your situation, consider speaking with a licensed insurance adviser who can assess your financial position, risk profile, and cover needs. They can help you understand the trade-offs and select an excess that protects you without overextending your budget.

Review your excess annually when your policy renews, and adjust it as your circumstances change. A well-chosen excess, combined with adequate cover, gives you genuine peace of mind when the unexpected happens.

Financial Disclaimer: This article provides general information only and does not take into account your objectives, financial situation, or needs. Before making any decision about insurance or choosing an excess amount, consider whether the information is appropriate for you. Read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) from your insurer, and consider obtaining personal advice from a licensed insurance adviser or financial adviser. Insurance products, premiums, excess amounts, and policy terms vary significantly between insurers and depend on individual circumstances. Always verify current terms directly with insurers and licensed advisers before making decisions.