What is an insurance excess, and how does it work?

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Whenever you make a claim on your insurance policy, there may be an additional upfront cost to pay when the provider accepts your claim. This payment is called an ‘excess’. 

But why does this fee exist? How does it work? And could you actually use it to save on your insurance premiums?

Let’s dive in.

Insurance excess

Collage of hands exchanging money as part of an insurance excess payment.

An insurance excess is an amount of money you agree to pay whenever filing a claim. While it seems counterintuitive (after all, don’t you file claims to get money?), it can actually be a great cost-saving measure in the long run. 

For example, let’s say your car gets damaged by a storm. Since your PDS says you’re eligible, you successfully file a claim for $5,000 worth of repairs. However, storm damage cover under your policy comes with a $500 excess. When you pay the excess, it counts toward the first $500 used in the repairs. Your provider then covers the remaining $4,500.

Essentially, by agreeing to pay an excess, you agree to take on a portion of the financial risk of every insurance claim. This lessens your overall risk in the eyes of the provider and prevents people from filing small-value claims, which can actually lower your insurance premiums. 

When comparing insurance quotes, adjust your voluntary excess to see how it affects your payments.

Can paying an excess make insurance premiums cheaper?

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In a roundabout way, yes. Whenever comparing or purchasing insurance policies, providers will sometimes 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 offer you lower premiums. Your nominated excess will then replace the standard excess required for all claims made with that specific provider’s policy.

Opting for a higher 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 and could make insurance cheaper. 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.

When do you not have to pay an excess?

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Not every policy requires an excess, and not all claims on a given policy will have excesses, either. Your insurance company may also waive your excess in certain circumstances, like if you were not at fault in a car accident. Always check the claims process outlined in the PDS before purchasing a policy or making a claim.

Can I pay an insurance excess in instalments?

Typically, an insurance excess is paid as a lump sum whenever your claim is approved. If you’re experiencing financial hardship, then depending on your provider and level of coverage, you may be able to ask to pay your insurance excess in instalments. However, this is more common in comprehensive car insurance policies or combined home insurance policies where you have the option to change your excess or add optional extras. 

Do you still have to pay an excess for write-off claims?

Unfortunately, yes. Every time your insurance provider settles a claim, you will have to pay any and all associated excesses, even if your car is written off or your home requires rebuilding. Be sure to consider the worst case scenario and how much coverage you’ll receive whenever comparing insurance policies.

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