Bumped a bollard and smashed a headlight? Before a single hammer swings, your insurer will ask for your excess. An insurance excess is the fixed amount you agree to pay toward each claim before your insurer picks up the rest. It’s the small print that can punch a surprising hole in your wallet.
Though the mechanics are similar for home or health cover, we’ll focus on motor policies in Australia and sprinkle in cross-references where useful. Understanding how excess works shapes your premiums, out-of-pocket costs and even the decision to claim at all. Over the next sections you’ll see the different types of excess, how insurers set the figures, real dollar examples ($500, $1,000, $5,000 repairs), when you can sidestep or reclaim the payment, and practical tactics for choosing a level that keeps both your budget and your vehicle safe.
Understanding the Basics: What an Insurance Excess Actually Is
Think of the excess as your share of the bill when things go pear-shaped. It answers the practical question every driver asks after an accident: “How does insurance excess work in real life and what will it cost me today?” Before we drill into the types and tricks, let’s lock down the fundamentals.
A plain-English definition
An excess is the cash amount written into your Product Disclosure Statement (PDS) that you agree to stump up each time you make a claim. In the United States the same idea is called a “deductible”. Whether your excess is $400 or $4,000, it is legally binding once you accept the policy.
How the payment works during a claim
- Incident occurs – damage, theft, hail, whatever.
- You lodge a claim with photos, police report, dash-cam footage, etc.
- Insurer confirms cover and requests the excess.
- You pay it either:
- Upfront to the repairer or insurer, or
- It’s deducted from any cash settlement.
- Repairs are completed or a payout is issued; the insurer covers the balance after your excess.
Your excess versus your coverage limit
The excess is not a haircut on your insured value – it’s simply your contribution toward each claim. Example:
| Scenario | Agreed Value | Repair Bill | Excess | Insurer Pays |
|---|---|---|---|---|
| Crash | $20,000 | $6,000 | $750 | $5,250 |
Your car is still insured up to the full $20,000 after the repair.
Why “per claim” matters
Excess is charged per incident, not per policy year. Hit a kangaroo in March and reverse into a pole in July? Two separate claims, two excesses. We’ll cover rare situations where you can avoid or recover that second payment later in the guide.
Why Do Insurers Use an Excess? The Logic and Benefits
If you’ve ever wondered why insurers bother with an excess at all, the answer is simple economics mixed with a dash of human behaviour. The excess is a built-in lever that helps insurers keep premiums affordable, spreads risk between the parties and nudges drivers toward safer habits—while staying inside Australia’s prudential rulebook. Here’s how the mechanics work.
Risk-sharing between insurer and customer
Putting some of your own money on the line discourages “have a go” claims for every paint scuff. By sharing even a small slice of the loss, you carry a stake in the outcome, which reduces what economists call moral hazard. Less unnecessary claiming equals lower overall claim frequency.
Controlling premium inflation
Every dollar an insurer doesn’t pay out ends up in the pricing model. Mathematically, expected claim cost = average loss × claim frequency − excess collected. A higher excess trims the expected cost, so the base premium comes down for the whole pool. Compare two identical drivers: one chooses $0 excess and pays more each year; the other picks $1,000 excess and pockets a sizeable premium discount.
Encouraging safer driving and maintenance
Knowing you’ll cough up the first few hundred bucks creates a healthy incentive to park carefully, keep tyres fresh and service the brakes. This behavioural nudge benefits the insurer but also pays off for you through fewer accidents and no-claim bonuses.
Regulatory backdrop in Australia
The Australian Prudential Regulation Authority (APRA) oversees insurers, ensuring excess structures are fair, clearly worded in the PDS and not used to sidestep consumer protections under the Insurance Contracts Act. So while insurers can set excesses, they must disclose them transparently and honour claims once your contribution is paid.
The Main Types of Excess You’ll See in Australian Policies
Not every excess is created equal. When you read a Product Disclosure Statement you’ll usually find a stack of different excesses that can be triggered by the circumstances of a claim, the driver behind the wheel or even the weather. Understanding the label on each one is the quickest way to work out how does insurance excess work for your specific risk profile and budget.
Compulsory (Basic or Standard) Excess
This is the non-negotiable amount every policy carries. The insurer sets it according to the vehicle class and overall risk—think $400–$800 for the average family hatchback, climbing north of $1,200 for prestige or performance cars. No matter who is at fault, this basic excess is payable once a covered incident occurs.
Voluntary or Additional Excess
Want cheaper premiums? You can opt to take a higher voluntary excess on top of the compulsory amount. Bump the figure from, say, $600 to $1,200 and you’ll often pocket a double-digit annual saving—provided the insurer allows voluntary choices for your usage (rideshare and taxi cover often bar the option). The trade-off is larger out-of-pocket costs on claim day.
Age & Inexperienced Driver Excess
If the driver is under 25, on Ps or has held a full licence for less than two years, an extra excess kicks in—typically $600 to $2,000. Example: your 22-year-old mate borrows the car and scrapes a guard rail. You’ll pay the basic excess plus the age excess unless they’re a named driver and the policy specifically waives it.
Special or Imposed Excess
After assessing heightened risks—multiple recent claims, turbocharged engines, off-road usage—an insurer may slap on a special excess. It’s spelled out individually in the schedule and can be anything from a flat $500 to several thousand dollars, reflecting the extra hazard you bring to the pool.
Named Driver / Undeclared Driver Excess
Most comprehensive policies allow you to list regular drivers. If an undeclared driver causes an accident, an additional excess—often $600–$1,500—applies. Keeping your driver list up to date is the easiest way to dodge this sting.
Situation-Specific Excesses
Certain events carry their own excess regardless of who was at the wheel. Common examples are shown below.
| Excess Type | When It Applies | Typical Cost* |
|---|---|---|
| Windscreen / Glass | Single chip or full replacement | $0–$200 (sometimes waived with add-on) |
| Hail-storm or Cyclone Zone | Claims arising in designated weather zones | $500–$1,500 |
| Rideshare / Business Use | Vehicle on a booking at time of incident | +$500–$1,000 on top of basic |
| Theft Without Keys | Car stolen without secure premises | $200–$600 surcharge |
| Flood / Inundation | Damage from rising water | Set per policy, often $1,000+ |
*Indicative only; check your PDS for exact figures.
With these categories in mind you can read any Australian motor policy and instantly spot which excesses might bite, and which you can tweak to keep premiums lean.
How Excess Amounts Are Set and When You Must Pay Them
Insurers don’t pull excess figures out of a hat. A pricing algorithm crunches thousands of data points, spits out a risk score, and the underwriter converts that into both a premium and a stack of excesses. Understanding the levers behind those numbers helps you predict – and sometimes trim – the cash you’ll have to cough up when things go wrong.
Key factors influencing the dollar figure
Several risk signals push an excess up or down:
- Vehicle value, class and repair complexity (a hail-dented Tesla panel costs more than a Corolla guard).
- Postcode risk: high-theft suburbs or cyclone-prone regions attract higher basic or special excesses.
- Driver age, licence tenure and claims history.
- Business usage: rideshare, courier or taxi work typically adds a separate operational excess.
- Policy customisation: choosing a higher voluntary excess or adding windscreen buy-out can alter the basic figure.
Fictional quote snapshot:
| Driver/Use | Car | Postcode | Basic Excess | Voluntary Add-on | Total Excess |
|---|---|---|---|---|---|
| 38-yo, private | 2018 Mazda 3 | 5061 | $600 | $0 | $600 |
| 24-yo, rideshare | 2022 Toyota Camry | 3000 | $650 | +$500 | $1,150 |
| 45-yo, regional | 2016 Ford Ranger | 4703 (cyclone) | $700 | $0 | $700 + $1,000 cyclone |
Timing and method of payment
Once the claim is accepted, the excess is usually:
- Paid directly to the smash-repairer before work starts; or
- Deducted from a cash settlement or write-off payout.
Health insurance excesses are handed to the hospital on admission, while motor and home excesses flow through the claims department.
Real-world cost illustrations
- $5,000 repair, $500 basic excess: you pay
$500, insurer pays$4,500– the PAA “What does $5,000 excess mean?” scenario in reverse. - $6,500 repair, $1,000 excess (RACQ example): out-of-pocket
$1,000, insurer$5,500. - Damage assessed at $350 with a $600 excess: claiming makes no sense, so you’d pay the panel-beater privately.
Do you pay an excess for every claim?
Yes, it’s normally per incident, not per policy period. Two prangs on the same day but separate locations equal two excesses. The only common waiver is where your insurer recovers 100 % from an identified at-fault party, in which case the excess you already paid is refunded – proof that knowing how does insurance excess work can save you twice over.
Excess vs Premium: Finding the Right Balance for Your Budget
Because every dollar the insurer doesn’t expect to pay out gets shaved off the premium, your chosen excess is one of the fastest levers for controlling annual cost. Push the excess up and premium comes down; dial it back and you hand the saving to the insurer. Understanding how does insurance excess work in the pricing model lets you pick the sweet-spot for your cash flow.
How the see-saw works
A higher voluntary excess lowers the expected claim cost in the insurer’s algorithm, so the premium drops. The reverse is also true. Here’s a fictional quote for a 35-year-old driver of a 2021 Corolla in Brisbane:
| Voluntary Excess | Total Excess Payable | Annual Premium |
|---|---|---|
| $0 | $600 (basic only) | $1,340 |
| $400 | $1,000 | $1,120 |
| $800 | $1,400 | $ 925 |
Crunching the break-even
Before grabbing the lowest premium, run the maths:
breakeven years = extra premium saved ÷ (higher excess – lower excess)
Worked example comparing the $400 and $800 options above:
- Premium saving = $1,120 – $925 = $195
- Extra excess you’d pay if you claim = $1,400 – $1,000 = $400
breakeven years = 195 ÷ 400 ≈ 0.49
If you’re confident of no claims for at least half a year, the $800 choice is financially ahead.
When a low excess makes sense
- First-time or young drivers who can’t quickly find $1,500 in an emergency
- Heavily financed or leased cars where the lender sets maximum excess limits
- High-mileage urban commuters with greater accident exposure
- Anyone without a healthy rainy-day fund
When a high excess pays off
- Experienced drivers with a clean record and a rarely-used second car
- Owners willing to self-insure minor dings to keep premiums lean
- Households with solid savings or an offset account ready to cover surprises
- Policyholders focused on minimising recurring expenses rather than one-off risk
Special note for commercial, rideshare and fleet owners
Premiums are generally tax-deductible for business use, while an excess is claimed only in the year a loss occurs. Balancing a slightly higher excess against predictable, deductible premiums can smooth operating cash flow—especially when multiple vehicles are on the books.
When You Might Not Have to Pay the Excess (or Can Get It Refunded)
In some circumstances the excess you carefully budgeted for never leaves your pocket—or comes back after the dust settles. Knowing these loopholes and policy features lets you steer the claims process so you’re not paying a cent more than necessary.
Not-at-fault accidents with an identified third party
If another driver is 100 % to blame and you can supply their registration, contact details and (ideally) insurer, most Australian car policies waive or later refund your excess. Hand over dash-cam footage, police report numbers and witness statements so your insurer can chase their costs.
Glass-only or windscreen cover options
Many comprehensive policies offer an add-on that fixes one chipped or shattered windscreen each year without the standard excess—sometimes with a small $0–$200 glass excess instead. Tick the option and minor cracks won’t sting your wallet.
Theft with keys forcibly taken or malicious damage
A police-reported break-in where keys are stolen, or graffiti keyed down the side of your car, may trigger a reduced or nil excess under “theft and vandalism” clauses. Read the PDS for exact evidence requirements.
Waived excess promotions and policy features
Look out for perks such as “first claim free”, “new-for-old replacement in first two years” or loyalty waivers after a claim-free streak. These marketing extras can save hundreds when things go wrong.
If the at-fault party can’t be identified
When the other driver flees, you’ll usually pay the excess upfront. You can attempt recovery later through their insurer, small-claims court or debt collection if you track them down, but success isn’t guaranteed—balance the effort against the amount involved.
Practical Tips for Managing and Reducing Your Excess Burden
A bit of homework before you sign (and a smidge of discipline after) can save you hundreds when the panel-beater’s invoice lands. Use the tactics below to keep your excess affordable, avoid surprise surcharges and make sure the money is sitting ready if the unexpected happens.
Choose the right excess at policy inception
Tick the box that matches both your risk appetite and your bank balance. Ask yourself:
- Could I comfortably transfer the total excess within 24 hours of an accident?
- Would a higher excess actually knock enough off the premium to be worth it?
- Does my finance or lease contract cap the maximum excess?
If the numbers feel tight, dial the excess down — paying a few dollars more each month is cheaper than scrambling for a grand after a bingle.
Keep cash on hand or in an emergency fund
Park the excess amount in a labelled savings bucket or offset account. Out of sight means you won’t dip into it for Saturday brunch, yet it’s instantly available when the insurer calls.
Review your excess annually
Cars depreciate, drivers age out of “young driver” loadings and your commute might change. At renewal time run fresh quotes: sometimes dropping the excess by $200 costs only a coffee a month.
Consider add-ons that cut or fix excess
Windscreen buy-out, “one excess per event” features or fixed-price excess for hail claims can be worthwhile in storm-prone states. Crunch the figures; the extra premium is often less than a single repair bill.
Use preferred repairers or authorised networks
Many insurers (including National Cover partners) shave $100–$200 off the payable excess when you choose their approved shop. You’ll also score lifetime repair warranties and faster parts ordering.
Maintain accurate driver listings
Update the policy whenever a new regular driver hops behind the wheel. Keeping Mum, Dad and the P-plater sibling listed is cheaper than copping a $1,500 undeclared-driver excess later.
Quick-Reference Glossary and Worked Examples
Need a refresher fast? The mini-guide below parks the core lingo, decision steps and dollar maths in one spot, so you can recall how does insurance excess work when the smash-repairer is on speed-dial.
Glossary of core terms
- Basic (Standard) Excess – compulsory amount payable on every covered claim.
- Voluntary Excess – extra sum you elect to add to shrink premiums.
- Driver Excess – surcharge for young, P-plate or undeclared motorists.
- Special / Imposed Excess – extra cost applied for higher-than-average risk.
- Claims Excess Refund – return of the excess once your insurer recovers full costs.
- Premium – price you pay each year for the policy.
- Agreed Value – fixed dollar amount your car is insured for.
- Market Value – payout based on current sale price at claim time.
- PDS (Product Disclosure Statement) – legally binding policy booklet.
Claim or pay out of pocket? Quick flowchart
- Is the damage cost over your total excess?
- Yes → Go to 2
- No → Pay privately; skip claim
- Can you prove another identified party is 100 % at fault?
- Yes → Lodge claim, request excess waiver/refund
- No → Lodge claim and pay excess
Side-by-side calculation examples
| Scenario | Repair Bill | Excess Paid | Insurer Pays |
|---|---|---|---|
| Fender bender | $2,800 | $600 | $2,200 |
| Write-off | $18,000 | $1,200 | $16,800 |
| Windscreen (add-on) | $420 | $0 | $420 |
All figures are illustrative; always check your own schedule before deciding.
Key Takeaways on Insurance Excess
An excess is your agreed slice of every claim, payable per incident before your insurer picks up the balance. Keep these points front-of-mind:
- The basic excess is compulsory; every other excess (voluntary, driver, special, glass, weather) stacks on top when its trigger fires.
- Higher excess = lower premium, but only if you can comfortably fund the gap when things go wrong.
- Claims under your excess are best paid privately; identified not-at-fault accidents can see your excess waived or refunded.
- Review your excess each renewal—vehicle value, driver ages and usage change fast.
- A small add-on (windscreen cover, preferred repairer) can wipe or trim the excess on common claims.
Ready to balance price and protection? Compare tailored quotes with National Cover today.
