What is car insurance excess?

In the world of car insurance, your excess is the amount you pay out-of-pocket whenever you make an insurance claim. While it’s never fun to pay out of pocket, it’s actually designed to keep your premiums manageable. Want to learn how it does that and the role it plays in car insurance?

Well then read on!

It might seem like just another annoying fee, but excess actually plays an important role in the car insurance ecosystem. Without it, everyone and their mothers would be claiming for every little scratch, dent and chip that afflicts their ride.

Here’s what makes excess to key to a functioning car insurance industry:

• It limits claims. If insurers had to process every minor repair, the flood of claims would slow down the system and push up costs.
• It keeps premiums in check. Without your contribution toward a claim, more money would have to come out of the insurer’s pocket - and that could mean higher premiums.
• It encourages people to be careful. Knowing you’ll have to pay an excess makes you think twice before taking too many risks on the road.

So yeah, excess isn’t exactly fun, but it does serve a purpose. And the fewer claims you make, the fewer times you’ll have to pay it - so it pays to be safe on the roads!

Let’s look at two hypothetical scenarios that demonstrate just how useful car insurance excess can be. Both of these examples assume you have comprehensive car insurance, which covers a wide variety of damages:

Scenario 1: Major Claim

Imagine your car is damaged in a storm. According to your product disclosure statement (PDS), you're covered and successfully file a claim for $5,000 in repairs. In this hypothetical scenario, let’s say your policy has a $500 excess for storm damage. 

You pay this excess, contributing towards the first $500 of the repairs, and your insurer covers the remaining $4,500.

Yes, it’s a hit to your wallet, but it’s a small trade-off given that you’re only paying $500 for repairs that would otherwise cost you much, much more without insurance.

This is where claiming makes sense. Your car gets fixed and both you and the insurer save a bit of money.

Scenario 2: Discouraging Minor Claims

Now, consider someone accidentally launching a trolley into your car and leaves the scene without writing a note. It leaves a small dent that costs around $600 to repair. Your excess is the same $500.

Sure, you could file a claim, but this time, you’ll be paying the $500 excess and your insurer will cover the remaining $100.

You have a decision to make. Claim and save $100? Pay the full $600 for repairs yourself? Forget about it and live with the dent?

In this case, you’re probably wise to deal with it yourself. The hassle of making a claim probably isn’t worth the $100. Plus it signals to the insurer that there's a slight (albeit minor) risk associated with where you live and/or park. While this won’t necessarily cause your premiums to increase, it could do so based on your overall risk profile and claims history.

And if everyone made similar claims, an insurer could be forced to raise premiums across the board to make up for all the admin and small payouts. 

Encouraging responsible behaviour

Of course, these are two ends of the spectrum and there are a lot of in-between cases. The point is, having an excess can encourage you to take better precautions and consider all the trade-offs before making a claim.

Car insurance companies typically offer a range of excess options for you to choose from. In our database, some insurers have ranges that start as low as $0, while others have options that go up to $5,000—but those are on the far ends of the scale.

You're more likely to see policies with excess choices that fall somewhere between $500 and $2,000.Generally speaking, the lower your excess, the higher your premium, and vice-versa. So choose carefully!

Usually, agreeing to pay a higher excess will get you a cheaper insurance policy.

Providers will often offer different price tiers based on the amount of excess you’re willing to pay. If you’re willing to pay a higher excess, they’ll generally lower your quoted premium. Your nominated excess will then replace the standard excess required for all claims made with that specific provider’s policy.

Opting for a higher car insurance excess can be a useful money-saving strategy for people who aren’t likely to file an insurance claim, since it’ll reduce monthly premium costs. However, be aware that when the worst happens, you may have to fork out more cash at claim time – and you may have to pay multiple excesses, too. Do you have enough savings to cushion the cost? 

It’s all about value for money and finding the right balance for you between paying more now, or later.

Why not test it out for yourself? When comparing car insurance quotes, adjust your voluntary excess to see how it affects your payments.