If you’ve ever looked at an insurance policy and wondered what ‘excess’ means, you’re not alone. 

It’s a term that pops up often, but can be hard to pin down.

Jump in with us and let’s learn what excess means, when you’ll need to pay it, and how it affects your insurance experience.

What Is Excess in Insurance?

In simple terms, an insurance excess is the amount you agree to pay out of your pocket when you make a claim on your insurance policy. 

It’s like a contribution to the cost of the claim before your insurer covers the rest. 

Think of it as a way to share the financial responsibility between you and the insurance provider.

For example, if you have a Motor Vehicle Insurance policy with a $500 excess and you make a claim for $2,000 in repairs, you’ll pay the $500 excess, and the insurer will cover the remaining $1,500. 

It’s a straightforward concept, but there are a few layers to it that are worth understanding.

Why Does Excess Exist?

Excess exists for a few key reasons, and knowing why can help you make smarter choices when picking a policy:

1. Keeps Premiums Affordable: A higher excess often means a lower premium because you’re taking on more of the financial load if something goes wrong.
   
   It’s a trade-off that can make insurance more budget-friendly.
   
   
2. Reduces Small Claims: By having an excess, insurers discourage small or frequent claims, which helps keep their costs down and, in turn, keeps premiums manageable for everyone.
   
   
3. Encourages Responsible Behaviour: An excess can motivate policyholders to take care of their insured items, such as driving safely or securing their home, to avoid needing to pay it.

Types of Excess in Insurance

Not all excesses are the same. 

Depending on your policy, you might come across different types. 

Here’s a quick rundown:

• Standard Excess: This is the default amount you agree to pay when you take out a policy.
  
  It’s usually fixed and applies to most claims.
  
  Say, a Home Insurance policy might have a $300 standard excess.
  
  
• Voluntary Excess: You can choose to increase your excess to lower your premium.
  
  For instance, opting for a $1,000 voluntary excess on your Commercial Motor Insurance might reduce your monthly payments.
  
  
• Compulsory Excess: This is set by the insurer and can’t be changed.
  
  It’s often based on various factors, including your age, driving history, or the type of cover.
  
  Young drivers, for example, might face a compulsory excess of $400 on top of the standard excess.
  
  
• Special Excess: Some policies include extra excesses for specific situations, say, flood damage in Home Insurance or high-risk items like jewellery.
  
  These are clearly outlined in your policy documents, so it’s best that you carefully check your policy.

Most general insurance policies in Australia (e.g., Home Insurance, Car Insurance, and Business insurance) include some form of excess to balance affordability and coverage.

When Do You Pay an Excess?

You don’t pay an excess every time you interact with your insurer; only when you make a claim, and even then, it depends on the situation. 

Here’s when you’ll typically need to pay it:

1. When You Make a Claim: If you’re claiming for damage or loss, you’ll usually pay the excess upfront or have it deducted from the payout.
   
   For example, if your home is damaged in a storm, you’d pay the excess before repairs begin.
   
   
2. Only for Your Own Claims: If you’re not at fault in an incident, like a car accident caused by someone else, and the insurer can recover costs from the other party, you might not have to pay an excess.
   
   This depends on your policy and the circumstances.
   
   
3. Multiple Claims, Multiple Excesses: If you make multiple claims for separate incidents, you may need to pay an excess for each one.
   
   Say, if your car is damaged twice in a year, you’d pay the excess for both claims.
   
   
4. Specific Events: Some policies require an excess only for certain events, such as natural disasters. 

How Much Is a Typical Excess?

The amount of excess varies depending on the type of insurance and your policy. 

Here are some typical ranges in Australia:

• Car Insurance: $300 to $1,500, depending on the car’s value, your driving history, and whether you’ve chosen a voluntary excess.
  
  
• Home Insurance: $200 to $1,000 for standard claims, with higher excesses (up to $5,000) for events like floods or earthquakes.
  
  
• Business Insurance: $500 to $5,000, depending on the business type and coverage, like property or liability insurance.

As an insurance broker, we always recommend checking your Product Disclosure Statement (PDS) to confirm the exact excess amounts for your policy.

How to Choose the Right Excess for You

Picking the right excess is about finding a balance between your premium and what you can afford to pay if you need to make a claim. 

Here are some tips to help you decide:

• Consider Your Budget: A higher excess can lower your premium, but make sure you can afford to pay it if you need to claim.
  
  If $1,000 upfront would be a stretch, a lower excess might be better.
  
  
• Assess Your Risk: If you’re a safe driver or live in a low-risk area, a higher excess might be worth it to save on premiums.
  
  However, if you’re in a flood-prone area, a lower excess could reduce financial stress during a claim.
  
  
• Talk to an Insurance Broker: Brokers can help you compare policies from multiple insurers to find one with an excess and premium that suits your needs.
  
  They can also explain the fine print to you so you can avoid surprises.

Common Questions About Excess

We get a lot of questions about excess, so let’s tackle a few to clear things up:

• Can I avoid paying an excess?: In some cases, yes, like if you’re not at fault in a car accident and the insurer recovers costs. But, for most claims, the excess applies.
  
  
• Does excess apply to all types of insurance? Most general insurance policies have an excess, but some niche policies, such as Travel Insurance, may not. It’s best to review your policy and make sure.
  
  
• Can I change my excess later? You might be able to adjust your voluntary excess when you renew your policy, but compulsory excesses are fixed. You can check with your broker for options available to you. 

Why Work with an Insurance Broker?

Dealing with insurance policies can feel difficult at times, especially when terms like ‘excess’ come into play.

That’s where we come in.

Here at Tank Insurance, we work with you.

We can:

• Assist in comparing policies from multiple insurers to find the best fit for your needs.
• Explain terms, such as excess, in plain, simple English, so you know exactly what you’re signing up for.
• Help you balance premiums and excess to suit your budget and lifestyle.

If you’re working with a broker, you can save on premiums by finding policies tailored to your specific needs.

Make Informed Decisions Now

Understanding excess in insurance is key to making informed decisions about your coverage. 

It’s not just a number; it’s a tool to balance your premiums and claim costs. 

Whether you’re insuring your car, home, or business, knowing when and how you’ll pay an excess can save you from surprises down the road.

If you’re ready to explore insurance options or want help finding a policy with the right excess for you, contact us at Tank Insurance. 

If you’re curious about other things, you can also read our blog. 

Let’s work together, and make the process simple and stress-free.