What Is Insurance Excess? Types, Costs & Impact on Premiums

Picture this: you’re involved in a minor accident, your car needs repairs, and your insurance steps in—except you’re told you’ll need to pay an “excess” before anything moves forward. For most Australians, this moment is when the realities of insurance excess hit home. Yet, few drivers truly understand what excess means, why it exists, or how it can influence the cost and value of their cover.

Insurance excess is more than just a line item in your policy documents; it’s a crucial part of every claim, directly affecting your out-of-pocket costs and the price you pay for peace of mind. Choosing the right excess can mean the difference between affordable premiums and an uncomfortable financial hit if you need to make a claim. With different excess types, legal obligations, and industry quirks to navigate, knowing how excess works is essential for both private motorists and commercial operators across Australia.

This article unpacks the ins and outs of insurance excess: what it is, how it operates in real-world scenarios, and why it’s a central feature of every car insurance policy. We’ll demystify the different types of excess, explain how your choices impact premiums, and share local insights—plus smart ways to manage or even reduce your excess costs, including options unique to National Cover clients. Whether you’re renewing your policy or just curious about getting better value, understanding insurance excess puts you firmly in the driver’s seat.

What Is Insurance Excess? Definition and Core Concepts

At its simplest, insurance excess—or deductible—is the amount you agree to contribute towards any claim before your insurer steps in. When your policy covers a repair or replacement, the excess covers the first slice of the bill; everything above that is paid by your insurer, up to your policy limits. You’ll see the exact excess levels laid out in your policy documents, often under a heading like “policy excess schedule”.

Excess plays a vital role in balancing risk between you and your insurer. By sharing part of the cost, insurers can keep premiums more affordable and curb minor, frequent claims. For you, selecting the right excess level is a balancing act: higher excess generally means lower premiums, but it also raises your out-of-pocket expense when you need to claim.

Several key terms crop up alongside excess:

Premium: the regular payment (monthly or annually) you make to keep your cover active.
Sum insured: the maximum amount the insurer will pay under your policy.
Claim: a request you lodge with your insurer for compensation after an incident.
No-claim bonus: a discount earned over time for making few or no claims.

Understanding how these terms interact helps you choose a policy that meets your needs. For a more detailed overview, the Insurance Council of Australia explains what an excess is and when you need to pay it.

Definition of Insurance Excess

Put simply, excess is the share of a claim cost you cover yourself. Whether you’ve got a cracked windscreen or a more extensive repair, you’ll pay the agreed excess amount first, and your insurer picks up the remainder—up to your sum insured. This amount is locked in when you take out or renew your policy and applies each time you lodge a claim.

Purpose of Excess in Insurance

Insurers require excess to prevent what’s known as “moral hazard”: the temptation to claim for every small ding or scratch. By asking policyholders to bear a portion of the cost, it discourages frivolous claims, reduces administrative overheads and keeps premiums in check for everyone. In effect, excess ensures both parties have skin in the game.

Key Terms Associated with Excess

When selecting or reviewing your insurance excess, it helps to have a solid grasp of related policy language:

Optional cover: extra features (like hire car or windscreen cover) you can add for an additional premium.
Policy excess schedule: that section of your Product Disclosure Statement listing each excess type and amount.

Together, these elements determine not only your premium but also your potential out-of-pocket costs. Knowing how they fit together puts you in control of both your cover and your budget.

Why Do Insurers Include an Excess? Purpose and Benefits

Insurers build excess into policies for good reason. First, it helps keep premiums affordable by filtering out small or opportunistic claims that drive up costs. It also fosters a sense of shared responsibility: you contribute to the repair bill when something goes wrong, and the insurer covers the rest. In Australia, rising repair and replacement costs—whether from parts shortages, increasing labour rates or more frequent extreme weather events—mean insurers must find ways to manage claims without passing unsustainable prices on to every policyholder.

Here are some of the key benefits of excess for both you and your insurer:

For insurers:
- Reduces the volume of minor claims and administrative overhead.
- Helps control overall claim expenditure and stabilise premiums.
- Encourages policyholders to maintain and protect their vehicles.
For policyholders:
- Access to more competitive premiums by sharing risk.
- Incentive to stay claim-free and retain no-claim bonuses.
- Greater transparency around what you’ll pay at claim time.

Controlling Claim Costs

Excess plays a direct role in trimming insurance expenses. By setting a threshold for out-of-pocket contributions, insurers limit the number of low-value or “nuisance” claims. Every claim—no matter how small—carries assessment and processing costs. When policyholders absorb the first portion of a claim, insurers avoid paying for trivial fixes like minor paint scratches or small dents, which can add up across thousands of policies.

Discouraging Frivolous Claims

Without an excess, there would be little deterrent for claiming every time a minor blemish appears. That might sound great in theory, but the reality is that frequent small claims rapidly inflate premiums for everyone. Excess acts as a modest hurdle: you’re less likely to lodge a claim for a $200 bumper scuff if you know you’ll pay the first part of the bill yourself. That keeps the system fairer and more sustainable.

Sharing Risk and Responsibility

Insurance isn’t just about transferring risk—it’s also about sharing it. By agreeing to an excess, you demonstrate financial responsibility and skin in the game. This shared-risk model encourages better care of vehicles and more cautious driving habits, which benefits the entire pool of policyholders. In the long run, this collaborative approach helps stabilise premiums and supports the availability of comprehensive cover at competitive rates.

How Insurance Excess Works: From Quote to Claim

Navigating excess from the moment you shop around for cover to the point you settle a claim can feel daunting. In reality, it’s a straightforward process involving four main stages: seeing excess options on your quote, choosing your preferred level, lodging a claim, and—where applicable—recovering excess from a third party. Let’s walk through each step so you know exactly what to expect.

Including Excess in Your Quote

When you request a car insurance quote, you’ll typically see two excess figures on the estimate:

Basic (or compulsory) excess: the minimum amount your insurer requires you to pay on any claim.
Voluntary excess: an optional extra sum you can agree to pay in addition to the basic excess, usually in exchange for lower premiums.

A sample quote excerpt might look like this:

Excess Type	Amount (AUD)
Basic Compulsory	$500
Voluntary	$250
Total Excess	$750

This table appears alongside your premium and cover details, giving you the power to adjust the voluntary excess up or down before you finalise your policy.

Choosing and Paying Your Premium with Excess

Once you decide on your excess levels, your premium will adjust accordingly:

Higher voluntary excess = lower premium
Lower voluntary excess = higher premium

During the online purchase or phone application, you’ll confirm your excess choices. Your final premium (paid monthly or annually) incorporates this selection. Be sure you can comfortably meet your chosen total excess if you need to claim—having too high an excess to pay might leave you out of pocket in a stressful situation.

Lodging a Claim and Paying Excess

If you have an incident that’s covered by your policy, here’s what typically happens:

Lodge your claim: via National Cover’s online portal or by calling our claims team.
Insurer assessment: a claims manager reviews the damage, checks policy terms and confirms your excess amounts.
Excess payment: once your claim is approved, you pay the excess directly—often by credit card or by deducting it from your settlement.
Repairs commence: after excess is paid, your insurer settles the remainder with the repairer, and work begins.

Keep documentation handy—police reports in the event of theft or vandalism, photos of damage, and repair quotes. Claims can vary in complexity, but most are finalised within 10–15 business days once all information is provided.

Excess Recovery When Not at Fault

If another driver is responsible for the damage to your vehicle, you may be entitled to get your excess back:

Claim against the at-fault party: your insurer or a third-party specialist will pursue recovery from the other driver’s insurer.
Refund process: once liability is established, your excess is reimbursed—either credited back to your account or deducted from the final invoice.

While recovery is common for clear-cut, not-at-fault incidents, it isn’t guaranteed. Factors such as untraceable drivers or uninsured vehicles can affect the outcome. If recovery isn’t possible, you’ll need to cover the excess as originally agreed.

By understanding each of these stages, you can choose an excess that balances upfront premium savings with manageable out-of-pocket costs when it really counts.

Main Types of Excess in Car Insurance

Understanding the different excess types on your car insurance policy can help you choose the cover that best balances premium cost and potential out-of-pocket expenses. In most Australian policies, you’ll encounter multiple excess categories—each targeting a particular risk factor—and these can add together when you make a claim. Below, we outline the core excess types you’re likely to see and how they work in practice. For a broader overview, see Suncorp’s guide on different types of car excess.

Standard (Basic) Excess

The standard, or basic, excess is the compulsory amount every policyholder must pay on a claim, regardless of circumstances. It’s set by your insurer and varies based on factors such as:

Policy type: comprehensive, third-party fire and theft, etc.
Vehicle class: sedan, SUV, performance car or commercial vehicle.
Insured sum: higher cover values may carry higher basic excesses.

Typical basic excess amounts range from $250 up to $1,000 or more. You’ll find the exact figure in your policy’s “excess schedule”, and it applies per claim before any other excess is added.

Voluntary Excess

Voluntary excess is an optional extra contribution you agree to pay on top of the basic excess. The idea is straightforward:

Higher voluntary excess → lower premium
Lower voluntary excess → higher premium

By accepting a larger voluntary excess, you share more risk with the insurer and unlock cheaper premiums. However, if you lodge a claim, your total excess becomes the sum of both standard and voluntary amounts—so it’s vital to ensure you can cover that combined figure if needed.

Age and Inexperienced Driver Excess

Insurers often impose an additional excess for younger or newly licensed drivers, recognising the statistically higher accident rates in these groups. This might apply when:

A driver is under 25 years of age.
A driver, regardless of age, has held a full licence for less than two years.

Age/inexperienced driver excesses can range from $300 to $700, depending on your insurer’s appetite for driver risk. If you’re a learner accompanied by a fully licensed adult, this excess typically doesn’t apply.

Driver History (Special) Excess

Also known as a special or imposed excess, this charge reflects your individual driving record. Factors that can trigger a special excess include:

Recent at-fault claims.
Traffic infringements or licence suspensions.
High-risk vehicle modifications or usage (e.g. performance tuning).

Unlike the basic or voluntary excess, special excess amounts are set at the insurer’s discretion and shown on your Certificate of Insurance. They usually range from $200 up to $2,500 and stack on top of any other excesses you’ve agreed to.

When you submit a claim, your total out-of-pocket cost could combine all applicable excesses. For example, a $500 basic excess, a $300 voluntary excess and a $400 special excess would result in a $1,200 contribution from you before your insurer covers the remainder. Always review your policy documents to confirm which excesses apply and how they accumulate in a claim situation.

Other Excess Variations: Imposed, Uninsured and Waived Excess

Beyond the standard, voluntary and age-related excesses, you might encounter three less common variations that can alter your out-of-pocket costs: imposed excess, uninsured excess and waived excess. Although these don’t apply to every driver, it’s important to know when they kick in and how they affect your claim.

Imposed Excess

An imposed—sometimes called a special—excess is charged at the insurer’s discretion on top of any standard or voluntary excess. It reflects additional risk factors and often appears when:

You drive or park in a suburb with a high claim frequency (such as areas prone to theft or vandalism).
Your driving record shows multiple at-fault claims, licence suspensions or notable traffic infringements.
Your vehicle has modifications or is used for high-risk purposes (think performance tuning or carrying tools for work).

Imposed excess amounts vary widely—typically from a few hundred to a couple of thousand dollars—and are always listed on your Certificate of Insurance. If you see an imposed excess, factor it into your total claim commitment before agreeing to any repair work.

Uninsured Excess

Uninsured excess applies when you choose to handle repairs outside your insurer’s authorised channels. For example, if you:

Opt to pay privately and bypass the insurer’s approved repairer network.
Settle directly with a body shop or specialist without notifying your insurer first.

In these cases, the insurer may apply an extra uninsured excess—sometimes double the usual rate—to cover its additional risk. This surcharge compensates for the lack of direct oversight on repair costs, parts quality and workmanship. To avoid unexpected charges, always check with National Cover before commissioning repairs, even if you intend to self-fund the work.

Waived Excess and Excess Waivers

A waived excess—also known as an excess waiver—means you pay nothing on a claim. Waivers usually occur under two circumstances:

Not-at-fault incidents: If another driver is entirely responsible and identified, National Cover will often refund your standard excess once recovery from the at-fault party’s insurer is complete.
Optional add-ons: You can purchase cover options—like windscreen or hail cover—that automatically waive the excess for those specific events.

Excess waivers come with a small additional premium, but they can be invaluable for high-frequency risks (for instance, driving in hail-prone regions). Always review your policy schedule to see which waivers are available and whether the extra cost aligns with your risk profile.

By understanding these extra layers of excess, you’ll have a clearer picture of your total liability in any claim scenario—and be better equipped to choose the right cover for your needs.

Excess Levels and Premiums: Finding the Right Balance

Excess and premiums are two sides of the same coin: as you adjust one, the other moves in the opposite direction. Picking an excess level that’s too low may protect you from hefty out-of-pocket costs, but it also pushes your premium upwards. Conversely, a high excess delivers immediate savings on your annual payment but leaves you exposed when you need to claim. Striking the right balance means weighing your budget against the likelihood of making a claim—and understanding how broader market forces influence both elements.

How Excess Influences Your Premium

When you agree to a voluntary excess, you’re essentially choosing how much risk you’ll share with your insurer. The trade-off usually works like this:

Higher excess → Lower premiums
Lower excess → Higher premiums

For example, increasing your voluntary excess from $500 to $1,000 could reduce your annual premium by around 10–15%. The actual saving varies between insurers and policy types, so it’s always worth comparing quotes. For more insights into this relationship, see NRMA’s guide on how your excess affects the cost of your car insurance.

Balancing Short-Term Savings vs Long-Term Costs

Choosing the cheapest premium can be tempting, but consider whether you could afford the excess if you need to claim. Ask yourself:

How likely am I to make a claim in the next 12 months?
Do I have funds set aside to cover the chosen excess?
Would a small bump in premium be worth the peace of mind of a lower excess?

If you drive a high-value vehicle or frequently navigate busy urban areas, a lower excess may be prudent despite a slightly higher premium. On the other hand, low-mileage drivers in safe neighbourhoods might accept a higher excess and bank the savings.

Industry Trends Impacting Excess and Premiums

Premiums and excess levels don’t exist in a vacuum. Insurers regularly review both in response to:

Rising repair costs due to parts shortages and higher labour rates.
Increased frequency of extreme weather events, such as hailstorms and floods.
Growing claim complexity, including advanced safety and electronic systems in modern vehicles.

These factors push average claim costs up, prompting insurers to adjust excess schedules and premiums to maintain sustainable pricing. Staying informed about market trends helps you anticipate changes at renewal time—and pick an excess level that remains fit for purpose.

Calculating Your Excess: Practical Examples

Understanding how excess affects both your out-of-pocket expense and insurer payout is easier with concrete examples. Below we run through typical scenarios to illustrate exactly what you’ll pay—and what your insurer covers—when you make a claim. Where calculations are involved, we’ve highlighted the formulas in code tags for clarity.

Example Calculation: $500 Excess

Imagine you experience hail damage after a storm, and your repair shop quotes $3,000 to fix dents and replace panels. If your policy has a standard excess of $500, the breakdown is straightforward:

Repair cost: $3,000
Your excess: $500
Insurer payout: $3,000 − $500 = $2,500

In formula form:

Insurer payout = Total repair cost − Excess
Insurer payout = 3,000 − 500 = 2,500

You’ll pay the $500 directly to the repairer or insurer, and National Cover settles the remaining $2,500.

Example Calculation: $1,000 Excess

Now consider a more extensive collision repair, with a bill of $4,200. With a higher policy excess of $1,000, your contribution rises:

Repair cost: $4,200
Your excess: $1,000
Insurer payout: $4,200 − $1,000 = $3,200

Expressed as:

Insurer payout = 4,200 − 1,000 = 3,200

Opting for a larger excess like this typically lowers your annual premium, but it also means you’ll come up with four figures if you need to claim.

Combining Excesses in One Claim

Often, more than one excess applies. Say you’re under 25 (age excess $300) and you’ve chosen a voluntary excess of $500 on top of a basic excess of $500. For a $5,000 repair, your total excess is:

Basic excess: $500
Voluntary excess: $500
Age excess: $300
Total excess: $500 + $500 + $300 = $1,300

Your insurer’s payout formula looks like:

Insurer payout = 5,000 − 1,300 = 3,700

Here you front $1,300 before National Cover covers the remaining $3,700.

Using an Excess Calculator

If you’d rather not run the numbers by hand, many insurers and comparison sites offer online calculators. To use one effectively, you’ll typically need:

The total estimated repair or replacement cost
Each applicable excess type and amount (basic, voluntary, age, special)
Any excess waivers you might have purchased

Enter these figures, and the tool instantly shows your excess total and insurer share. This can be invaluable when comparing how different excess levels affect both your premium and potential claim payouts. Remember, a quick calculation now could save you a nasty bill later.

Legal Framework: Your Disclosure Obligations Under the Insurance Contracts Act 1984

When you take out or renew car insurance, your relationship with the insurer is governed by the Insurance Contracts Act 1984. Central to this Act is the principle of good faith—both you and your insurer must be transparent. Your duty to disclose relevant information isn’t just a box-ticking exercise; it underpins the validity of your cover and the smooth progression of any future claim.

Key provisions under the Act set out what you must share before the policy starts, the insurer’s rights if you don’t, and the obligations insurers carry to keep you informed. Familiarising yourself with these sections helps prevent unpleasant surprises, such as reduced payouts or even contract avoidance. For full details, you can refer to the official text of the Insurance Contracts Act 1984.

Duty of Disclosure (Section 21)

Under section 21, you must tell your insurer every matter that you know, or could reasonably be expected to know, is relevant to their decision to accept the risk of insuring you. In practice, this means disclosing facts such as:

Recent traffic infringements or licence suspensions
Use of your vehicle for rideshare or commercial purposes
Modifications that affect safety, like performance upgrades

“Relevant” information is anything a prudent insurer would consider when setting your premium or deciding whether to offer cover. Omitting or downplaying material facts—even unintentionally—can breach this duty.

Consequences of Non-Disclosure (Section 28)

Section 28 gives insurers the right to reduce liability or avoid the contract entirely if you fail to meet your disclosure obligations. In effect, the insurer can:

Adjust your claim payout to the proportion that your disclosed risk bears to the actual risk
Cancel the policy and refund unearned premiums, minus any short-term rates
Void a claim altogether, leaving you to cover the full cost

For example, if you neglected to mention that your car carries business-use endorsements and later claim after a courier job incident, your insurer could deem the risk materially different and limit or reject your claim.

Insurer’s Duty to Inform (Sections 22 & 74)

Sections 22 and 74 ensure you’re not left guessing about these obligations. Insurers must:

Ask questions in good faith and without ambiguity, so you understand what to disclose (sec. 22)
Advise you clearly of your duty to provide relevant information before the contract is finalised (sec. 74)

You have the right to receive your full policy wording and Product Disclosure Statement, which must outline any disclosure requirements and the consequences of not meeting them. If terms are unclear, request clarification—this transparency protects both parties and avoids disputes at claim time.

How to Manage and Reduce Your Out-of-Pocket Excess Costs

Excess can feel like an unavoidable expense when you need to claim, but there are practical steps to minimise what you pay directly. By choosing the right excess level, tapping into cashback programs, adding targeted cover options and keeping a clean driving record, you can reduce surprises and smooth out your cashflow when repairs or replacements are necessary.

Selecting the Optimal Excess Level

Choosing an excess that suits both your budget and risk profile is the first line of defence. Before you settle on a figure, work through this quick checklist:

Driving habits: How often and where do you drive? High-traffic or hail-prone areas may warrant a lower excess.
Financial cushion: Can you comfortably cover the excess if you need to claim?
Vehicle value: Older cars with lower repair costs might tolerate a higher excess.
Claim likelihood: Consider your commute, parking security and accident history.
Risk appetite: Weigh premium savings against potential out-of-pocket bills.

Running these factors together helps you strike a balance between a manageable excess and competitive premium.

National Cover’s Excess Cashback Program

One of the smartest ways to cut your excess bill is through National Cover’s own Excess Cashback Program. When you use an approved repairer, you could have part—or all—of your excess refunded. To qualify:

Your repair must be approved and managed by National Cover’s claims team.
The work takes place at one of our partner repairers.
The vehicle is repairable (not deemed a total loss).
You’ve lodged the claim in line with policy terms.

Excess Cashback can recover up to your standard excess amount, helping you avoid that hefty one-off cost.

Policy Add-Ons and Cover Options

Sometimes it’s the extras that deliver the biggest peace of mind. A few worthwhile add-ons include:

Hire car cover: Keeps you moving without rental outlays if your car’s in for a week of repairs.
Windscreen cover: Waives excess for glass chips and cracks, avoiding even small out-of-pocket charges.
Any repairer choice: Opt for your preferred panel beater and still enjoy excess discounts through our network.

These options carry a modest additional premium but can save you hundreds when you need them most.

Maintaining a Strong Driving Record

Safe, courteous driving is your best long-term strategy for minimising excess charges:

Avoid at-fault accidents: Fewer claims mean no special or age-related surcharges.
Keep traffic infringements to zero: A clean licence can prevent imposed excesses tied to driving history.
Consider advanced training: Some insurers recognise recognised courses with premium discounts.
Protect your no-claim bonus: It can shave up to 60% off your premium and discourage excess escalations.

By combining thoughtful excess selection with cashback programs, targeted add-ons and a spotless driving record, you’ll be well placed to limit your out-of-pocket costs—turning excess from a burden into a budgetable element of your cover.

Frequently Asked Questions About Insurance Excess

Below are answers to some of the most common queries about insurance excess. Armed with this information, you’ll feel more confident when choosing your cover and managing a claim.

How Does Insurance Excess Work?

When you make a claim, excess is the portion of the repair or replacement cost you pay before your insurer contributes. The typical steps are:

Lodge your claim online or by phone.
The insurer assesses the damage and confirms which excess types apply.
You pay the total excess (basic plus any voluntary, age or special excess) directly—often by credit card or by having it deducted from the settlement.
The repairer begins work once excess is paid, and your insurer covers the remaining costs up to the policy limit.

Is a High or Low Excess Better?

There’s no one-size-fits-all answer—your ideal excess depends on your budget and risk tolerance:

High excess: lowers your annual premium but means a bigger out-of-pocket cost if you claim.
Low excess: raises your premium slightly but keeps your contribution manageable when you need repairs.

Consider factors such as your driving habits, how much you can afford in a single payment and the likelihood of a claim. A quick calculation of potential savings versus potential claim costs will help you strike the right balance.

What Is Imposed Excess in Insurance?

An imposed (or special) excess is an extra charge set by your insurer based on specific risk factors. Common triggers include:

A history of at-fault claims or licence suspensions.
Frequent parking in areas known for theft or vandalism.
Vehicle modifications (e.g. performance upgrades) or use for commercial purposes.

This excess is added on top of your basic and voluntary amounts and will be listed on your Certificate of Insurance.

Can You Change Your Excess After Buying a Policy?

Yes—but with some conditions:

Increasing excess: you can usually raise your voluntary excess at any time. This instantly lowers your premium.
Decreasing excess: you can only reduce voluntary excess when your policy is up for renewal, and provided no claims are pending.

Any change will be confirmed in writing, showing your new excess level and revised premium.

When Might You Not Pay Any Excess?

There are a few scenarios where excess may be waived or refunded:

Not-at-fault claims: if another driver is clearly to blame and identified, your insurer often recovers your excess from their insurer and refunds you.
Excess waivers: optional add-ons (for windscreen damage, hail cover or rental car cover) can eliminate excess for those specific events.
Approved repairer cashback: through National Cover’s Excess Cashback Program, you may get all or part of your standard excess back when using a partner repairer.

Always check your policy wording to confirm which waivers and refund processes apply to you.

Final Thoughts and Next Steps

Understanding how insurance excess works—and making the right choice for your situation—can save you both time and money when you need to claim. By balancing premium savings against potential out-of-pocket costs, Australian drivers and businesses alike can find a policy that suits their driving habits, budget and risk profile. Remember that excess isn’t just a line item on your renewal notice; it’s a key part of how your cover operates when things go wrong.

Now is the perfect time to review your current policy’s excess levels. Ask yourself: could a higher voluntary excess lower my premiums without leaving me exposed? Or would a smaller excess better protect my finances if I need repairs? Take a moment to check your Product Disclosure Statement and Certificate of Insurance—ensuring your excess aligns with your needs and peace of mind.

Ready to take control of your cover? Visit National Cover to compare quotes, customise your excess options and explore programs like our Excess Cashback. Whether you’re renewing or switching providers, our team is here to help you find a smarter balance between cost and protection—so you can drive with confidence.