When you take out car or home insurance, you probably don’t think much about the term excess—until something goes wrong. It’s one of those insurance details that often gets overlooked, only to cause confusion or frustration when you make a claim. But understanding what an excess is, how it works, and why it exists can make a big difference to how you manage unexpected costs after an accident, storm, or theft.
This guide breaks it down in simple terms and explains how the excess amount affects your insurance claim and out-of-pocket expenses.
What is an Insurance Excess?
An insurance excess is the amount you agree to pay out of your own pocket when you make a claim. Think of it as your share of the cost before your insurer steps in to cover the rest.
For example, if your car insurance excess is $800 and you have an accident causing $3,000 worth of damage, you’ll pay the first $800, and your insurer will cover the remaining $2,200. The same logic applies to home insurance—if a storm damages your roof and the repairs cost $10,000, you’ll pay the excess stated in your policy before your insurer pays the balance.
Every policy includes an excess, though the exact amount varies between insurers and types of cover. You’ll find it listed in your Product Disclosure Statement (PDS) or policy schedule.
Why Does an Excess Exist?
Excesses serve two main purposes.
First, they help keep insurance premiums affordable. By asking policyholders to contribute a small portion of the cost, insurers can reduce the number of small, frequent claims—like a broken mirror or minor scratch—that would otherwise drive up premiums for everyone.
Second, it encourages responsible ownership. When you know you’ll have to pay an excess, you’re more likely to take precautions, such as locking your home, driving carefully, or securing your car in a garage.
In short, it’s a cost-sharing tool designed to make insurance fairer and more sustainable in the long run.
The Different Types of Excess
Not all excesses are the same. Depending on your policy, you might encounter several types:
- Standard or Basic Excess: The default amount you pay for any claim.
- Voluntary Excess: An optional amount you agree to pay in exchange for lower premiums.
- Age or Inexperienced Driver Excess: Applied when the driver is under a certain age (often under 25) or has limited driving experience.
- Special or Additional Excess: Charged in specific situations, such as theft claims, hail damage, or if your property is in a high-risk location.
Your insurer will let you know which ones apply before you finalise your policy, so it’s important to review them carefully and ensure they fit your situation.
How an Excess Works in a Car Insurance Claim
After a car accident, you must pay the excess before the repairer can even begin work. If you’re facing a surprise $1,000 excess, looking into bad credit loans can be a way to get the payment sorted and your car back on the road sooner.
However, the key is understanding when and how the excess applies. Generally, you’ll need to pay it if you were at fault or if the insurer can’t identify the other driver. But if you can clearly prove another party caused the accident—and provide their full details (name, address, and registration)—your insurer may waive the excess entirely.
Always confirm this with your insurer before lodging a claim, as policies differ slightly between providers such as NRMA, AAMI, and Allianz.
How an Excess Works in a Home Insurance Claim
The process for home insurance is similar. If your home is damaged by events like storms, burst pipes, or theft, your insurer will deduct the excess from the payout or ask you to pay it upfront before repairs start.
For example, if the cost of repairing water damage is $5,000 and your excess is $600, your insurer may pay the builder or tradesperson $4,400 while you cover the rest. In most cases, you’ll only need to pay one excess per event, even if multiple parts of your property were damaged.
That said, some insurers apply separate excesses for specific claims, such as flood damage or accidental loss, so it’s important to double-check your policy terms.
Can You Change Your Excess?
Yes. Most insurers allow you to adjust your excess when you first buy or renew your policy. Increasing your excess usually lowers your premium, since you’re agreeing to take on more risk. On the other hand, choosing a lower excess means you’ll pay less out of pocket if you claim, but your premiums will likely be higher.
Finding the right balance depends on your financial situation and risk tolerance. If you have enough savings to comfortably cover a $1,000 excess, opting for a higher excess can reduce your yearly costs. But if you’d struggle to pay that amount unexpectedly, keeping it lower might give you more peace of mind.
When You Don’t Need to Pay the Excess
In some situations, insurers will waive the excess. Common cases include:
- When the other driver is clearly at fault, and you can provide their full details.
- When your car or property is damaged while parked and the responsible person is identified.
- When you make a claim for an event covered by a specific “no excess” policy feature, like glass repair or emergency accommodation (depending on the insurer).
Always check the PDS to confirm whether these scenarios apply to your cover.
Final Thoughts
Insurance excesses might seem like small details, but they can have a big impact when you need to make a claim. Understanding how they work helps you plan and avoid nasty surprises when you’re already dealing with damage or loss.
Whether it’s your car, your home, or your belongings, always know how much your excess is, when it applies, and whether you can afford it. That way, if something unexpected happens, you’ll know exactly what to expect and can handle the situation calmly and confidently.