Excess

An excess is the amount you agree to pay out of your own pocket when you make an insurance claim. Your insurer pays the rest, up to your policy limit.

In other countries they call it a “deductible.” In Australia, we call it an excess. Same idea, different name.

Why It Matters

• It directly affects how much you pay out of pocket when something goes wrong.
• A higher excess usually means a lower premium, and vice versa.
• Some policies have more than one type of excess, so it pays to understand each one.
• Choosing the wrong excess level can leave you short when you need to claim.

Show Transcript

What does excess mean when it comes to insurance and when do you actually pay it? Excess is the amount that you pay out of pocket anytime you need to make a claim. I'll give you a couple of examples to make it super simple. Let's say you've got a property and it's flooded. The damages cost $3,000, but your excess is $500. The excess is the first portion that you put towards the claim. You would pay $500 and the insurer would front up the remaining $2,500. $500 plus $2,500 equals the total claim amount of $3,000. Another example, simply for illustration sake, is a shop fire claim. Say the total damage is $10,000 and you make a claim with an excess of $1,000. That's the first amount that you pay towards it and then the insurer will front up the remaining amount of $9,000. Again, $1,000 plus $9,000 equals $10,000. It is really important to make sure you understand what your excesses are. It's common for insurance policies to have different excesses for different situations or different events. So, always read your policy wording to understand what your cover looks like. That made sense? Good. Follow for more tips.

Types of Excess

• Compulsory excess - The fixed amount set by the insurer that you must pay on every claim. You can’t change this one.
• Voluntary excess - An extra amount you choose to add on top of the compulsory excess in exchange for a lower premium. See voluntary excess for more detail.
• Age excess - An additional excess that applies if the driver is under a certain age (common in motor insurance).
• Special excess - Some policies apply a higher excess for specific events, like flood, storm, or subsidence.

Simple Examples

• You have a $500 excess on your car insurance and make a claim for $5,000 in repairs. You pay $500 and the insurer pays $4,500.
• Your business insurance has a $1,000 compulsory excess. A burst pipe causes $15,000 in damage. You pay $1,000 and the insurer covers $14,000.
• You chose a $250 voluntary excess on top of a $500 compulsory excess to keep your premium down. The trade-off is that if you make a claim, you pay $750 total before the insurer kicks in.

Common Mistakes or Misunderstandings

• Setting your excess too high to save on premiums. If you can’t afford to pay the excess when a claim happens, the savings aren’t worth it.
• Forgetting about multiple excess types. Your total out-of-pocket cost might include compulsory, voluntary, and special excesses stacked together.
• Thinking the excess is deducted from your payout. Sometimes you pay it directly to the repairer or service provider, not to the insurer.
• Not checking if excess applies per claim or per event. Some policies charge an excess for each separate claim arising from the same event.

When to Speak to a Broker

If you’re not sure what excess level makes sense for your budget and risk, or you want to understand all the excess types on your policy, a broker can break it down for you.

Need help?

If you want to understand the excess on your current policy or find the right balance between excess and premium, reach out to Tank Insurance and we’ll walk you through it.

Related Terms

• Voluntary Excess - The optional extra amount you choose to pay to reduce your premium.
• Insurance Premium - Your excess and premium work together to determine your total cost of insurance.
• Principle of Indemnity - The excess is one way insurers ensure you share some of the risk.