Picture this: you drive a Subaru Outback in Chatswood, NSW. You find a comprehensive policy with a $600 excess for $2,014 a year. Then you spot the same policy with a $2,000 excess — $1,452 a year. That’s a $562 difference each year, or about $47 a month. But here’s the catch: if you crash and write off the car, you’ll need to hand over $2,000 before the insurer pays a cent. The excess is the price of admission for a claim, and picking the right number means balancing guaranteed savings against a potential lump sum you might not have.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Understanding the trade-off between your excess and your premium is the single most practical thing you can do when buying car insurance. The right choice depends entirely on your savings, your driving habits, and your stomach for risk. Here’s what you actually need to know to get it right.
What You’ll Learn About Car Insurance Excess
Premium Savings vs. Claim-Time Cost: The Real Numbers
Let’s look at a concrete example. Based on a comparative quote for a Toyota Corolla with a 30-year-old main driver, the difference between the lowest and highest excess options is striking.
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| Excess Level | Annual Premium | Annual Savings vs $400 Excess | Out-of-Pocket at Claim Time |
|---|---|---|---|
| $400 | $1,120 | $0 | $400 |
| $1,000 | $896 | $224 | $1,000 |
| $2,000 | $696 | $424 | $2,000 |
Choosing the $2,000 excess saves $424 a year compared to the $400 excess. Over five claim-free years, that’s $2,120 in your pocket. But if you have one at-fault claim costing $2,000, you’re still $120 ahead over that period. The risk is real, but so is the reward. The Subaru Outback example from earlier tells the same story: raising the excess from $600 to $2,000 saves $562 a year, or nearly 30 per cent off the premium. What I tend to notice is that people focus on the monthly premium and miss the total annual picture — that small monthly saving adds up to something meaningful over a few years.
This trade-off looks different for every driver. Someone with a clean record, off-street parking, and low annual kilometres may feel comfortable with a higher excess because they genuinely claim less often. On the other hand, a driver in a high-risk area with a history of claims might find a lower excess cheaper in the long run when you factor in the frequency of claims.
Common Mistakes People Make With Car Insurance Excess
Picking the Highest Excess Without Checking Your Savings
The mistake is straightforward. You see the lowest premium and jump at it. But if you have only $1,000 in savings and you pick a $2,000 excess, a single at-fault accident leaves you unable to afford the claim. The car sits unrepaired, or you have to borrow money at a bad rate. Insurers generally won’t let the claim proceed until the excess is paid, either directly to the repairer or deducted from a total-loss settlement. What I’d do: check your emergency fund first. If it’s under $2,000, work backwards from there and choose an excess that fits comfortably within it.
Ignoring the Stacking Effect of Additional Excesses
Your basic excess is just the starting point. Most Australian policies add an age excess for drivers under 25, an inexperienced driver excess if the driver hasn’t held a full licence for two years, and an unlisted driver excess if the person at the wheel isn’t named on the policy. These amounts stack on top of your basic excess for a single claim. Let’s say your basic excess is $600, the age excess is $400, and the unlisted driver excess is $300. If your 19-year-old friend borrows your car and has an accident, your total out-of-pocket cost becomes $1,300 — more than double what you expected. The policy schedule always lists these, but most people don’t read it closely enough.
Assuming You’ll Never Claim
The “I’m a safe driver” mindset leads many to choose the highest excess. Statistically, you might go five or ten years without a claim. Over that time, the premium savings are substantial. But the moment a claim happens — whether it’s your fault or not — the excess still applies unless the other driver is identified and accepts fault. If you’re saving $424 a year and have one $2,000 claim in ten years, you’re still ahead by $2,240 in that decade. The psychological sting of a large lump sum payment often outweighs the mathematical benefit. It’s worth weighing your own tolerance for that feeling against the guaranteed savings.
Not Understanding When the Excess Is Waived
Many drivers believe they’ll never pay an excess because they’re careful. But excess applies in more situations than just at-fault accidents. Theft, vandalism, storm damage, hail, flood, bushfire, and animal collisions all typically require you to pay the excess. The only common scenario where you don’t pay is when you can provide the full name, address, and vehicle registration of the at-fault driver so the insurer can recover the costs. If you can’t identify them — a hit-and-run in a car park, for example — the excess stays with you. Reading the Product Disclosure Statement (PDS) before you buy the policy is the only way to know exactly where you stand.
How to Choose the Right Excess for Your Situation
Run the Numbers Across Multiple Scenarios
When you get quotes, ask for the premium at $400, $600, $1,000, $1,500, and $2,000 excess levels. Write down the annual savings between each step. Then multiply those savings by three years — the average gap between claims for many drivers. That gives you the real financial buffer you’re building against a future claim. If the savings over three years are larger than the difference in excess, you’re winning financially even if you claim once in that period.
Audit Your Emergency Fund Honestly
Your excess should be an amount you could pay tomorrow. Not “maybe in a month” or “after I sell something” — tomorrow. Financial counsellors stress this point repeatedly. If your savings balance is $1,200, choosing a $2,000 excess is a gamble you’ll probably lose at the worst possible moment. A lower excess costs more per year, but it guarantees you can always access your insurance benefit when you need it. If you’re unsure about your legal position after a complex claim dispute, getting a second opinion through a finance advice service might help clarify your options before you commit.
Factor in Your Driving Profile
Your personal risk profile matters. High annual mileage, street parking in a busy suburb, a history of claims, or young drivers in your household all increase the probability of a claim. If your claim likelihood is high, a lower excess may save you more in the long run because you’ll actually use it more often. Conversely, if you work from home, park in a garage, and have a clean 10-year record, a higher excess makes strong financial sense. RACQ suggests weighing the difference between a higher premium with a lower excess versus the opposite, based on your personal financial situation.
Compare High vs. Low Excess for Your Specific Policy
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| Factor | High Excess | Low Excess |
|---|---|---|
| Annual premium | Lower (saving up to 38% vs low excess) | Higher (paying for lower risk at claim time) |
| Cost when you claim | Higher out-of-pocket (e.g., $2,000) | Lower out-of-pocket (e.g., $400) |
| Best for | Strong savings buffer, low claim risk, low annual mileage | Limited savings, higher claim risk, frequent drivers |
| Psychological impact | Smaller ongoing cost, but painful lump sum at claim | Higher ongoing cost, but easier claim-time experience |
Understanding the minimum insurance requirements in your state also matters. Third-party property policies often have a fixed, non-adjustable excess, while comprehensive policies give you more control. Knowing the difference helps you choose the right type of cover first, then fine-tune the excess within it.
Look Ahead to Emerging Changes
Insurance products evolve. Some insurers now offer telematics-based policies where your driving behaviour directly affects your premium, sometimes with lower excess options for good drivers. Others are adjusting excess structures for electric and high-performance vehicles. Keeping an eye on how your insurer handles these categories can reveal opportunities to lower your excess or premium without compromising your coverage. If your policy fine print feels overwhelming, consulting a business law service for a plain-English breakdown of your obligations might be worth the investment.
Frequently Asked Questions About Car Insurance Excess
Do I pay an excess if the accident wasn’t my fault? ▾
How is the excess collected when I make a claim? ▾
What happens if I can’t afford my excess at claim time? ▾
Can I remove the basic excess from my policy? ▾
Does a higher excess always mean a lower premium? ▾
Your Excess, Your Control
The car insurance excess is one of the few levers you actually control in an insurance policy. You can’t change your age, your postcode, or your driving history overnight. But you can choose exactly how much financial risk you carry at claim time. The right number balances guaranteed premium savings against a claim-time cost you can comfortably cover. Let your savings buffer and your real driving habits — not a guess or a fear — make that decision for you.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Navigating Car Insurance After an Accident: A Step-by-Step Guide.
Sources and Further Reading
The Ultimate Guide to Understanding Car Insurance Excess in Australia — A deeper look at the technical differences between compulsory, voluntary, and additional excesses across Australian policies.
Understanding State Mandated Insurance Levels in Australia — Know the legal minimum coverage requirements in your state before choosing your excess level.
ASIC MoneySmart (2024). Choosing car insurance. 🔗
RACQ (2024). What is car insurance excess. 🔗
National Cover (2024). Car insurance excess explained. 🔗
Allianz Australia (2024). What is car insurance excess. 🔗
