Imagine you file a home insurance claim for $6,000 in damage and discover you’re paying the first $1,000 out of your own pocket. That $1,000 is your insurance excess — the amount you agree to cover before the insurer pays the rest. After your claim is processed and approved, your insurer pays the remaining $5,000. That’s how the arithmetic works on a standard property insurance claim in Australia.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Insurance excess exists for a reason. It cuts down on small, frequent claims and keeps premiums more affordable for everyone. But the number you choose — or the one your policy defaults to — can make a real difference to your wallet when something goes wrong. If you don’t know what your excess is, or that extra excesses can stack on top for things like floods or earthquakes, you could owe far more than you expected. Here’s what you actually need to know.
The term you’ll see most often on your policy documents is excess. Here’s what it means.
How Standard and Additional Excesses Stack Up
Most property insurance policies in Australia come with at least two layers of excess. The standard excess is the one you choose when you take out the policy — the amount you pay on any claim. But certain perils, particularly natural disasters, can trigger an additional excess on top of that. Understanding how these two layers work together is the difference between a manageable claim and a nasty surprise.
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| Excess Type | What It Covers | How It Affects You |
|---|---|---|
| Standard Excess | All claims — fire, theft, storm, accidental damage | You choose this amount when buying the policy. Higher standard excess lowers your premium. |
| Additional Excess (Flood) | Flood-related damage | Stacks on top of the standard excess. Both excesses apply to a single flood claim. |
| Additional Excess (Earthquake) | Earthquake and ground movement | Also added on top of standard excess. Total excess can be significantly higher than expected. |
| Additional Excess (Other named perils) | Cyclone, bushfire, or storm surge depending on your policy | Check your product disclosure statement — these perils vary by insurer and location. |
What this means in practice: if you have a standard excess of $1,000 and your policy carries an additional flood excess of $500, a flood claim of $10,000 leaves you paying $1,500 out of pocket before the insurer covers the remaining $8,500. The NRMA guide emphasises that your choice of standard excess should be appropriate for your sum insured and the limits of your additional benefits. My first move would be to check whether your policy lists additional excesses at all — many people don’t realise they’re there until they claim.
Mistakes That Leave You Out of Pocket
The research on how people handle insurance excess reveals a few patterns that cost more than they should. None of these are about bad luck — they’re about not looking closely enough at the numbers before a claim happens.
Not knowing your excess before you claim
It sounds obvious, but a lot of policyholders don’t know their exact excess until the claim form arrives. If you’ve let your policy auto-renew for a few years, the excess you agreed to initially may have changed, or you may have forgotten what it was. The Finder example of a $6,000 claim with a $1,000 excess shows the basic structure, but the real pain comes when someone expects to pay $500 and owes $2,000. What I tend to notice is that people who check their excess at renewal time are far less likely to hesitate when they actually need to claim — hesitation that can sometimes mean not claiming at all.
Ignoring additional excesses for specific perils
Standard excess is clearly stated on your policy summary. Additional excesses are often buried in the fine print of the product disclosure statement. Flood, earthquake, and cyclone excesses can add hundreds or even thousands of dollars to your out-of-pocket cost. If you live in a bushfire-prone area or a flood zone, this isn’t a hypothetical problem. The NRMA guide confirms that your choice of standard excess should take into account the limits of additional benefits — which implicitly means knowing what those additional excesses are. If you’re in a high-risk area, check whether your policy has a separate property insurance legal review clause that affects how these excesses are applied.
Choosing excess based only on the monthly saving
It’s tempting to pick the highest excess option because it drops your premium by $150 a year. But that saving only works if you never claim, or if you claim for something large enough that the excess feels small relative to the payout. If you claim once for $3,000 with a $2,000 excess, you’re only getting $1,000 from the insurer — and you’ve paid the higher premium difference for years. The smarter approach is to match your excess to what you could comfortably pay in a tight month, not just to what looks cheapest on the quote screen.
Choosing an Excess Level You Won’t Regret
Picking the right excess isn’t about finding a single correct number — it’s about balancing three things: what you can afford to pay if something happens, how much premium you’re willing to pay each year, and what risks are most likely where you live.
Start with your cash flow, not the premium
An excess works like a deductible. Before you decide how high to set it, work out the most you could realistically pay out of pocket without borrowing or going without essentials. If your savings can handle $2,000 but $3,000 would be a stretch, set your excess at $2,000. That number becomes the ceiling for your out-of-pocket risk. Everything above that is the insurer’s problem. The NRMA guide suggests your excess should be appropriate for your sum insured — meaning a very high excess on a very valuable property could leave you exposed if a medium-sized claim falls mostly on you.
Factor in where you live
If your property is in a flood zone, bushfire area, or cyclone region, the additional excesses for those perils are a bigger part of the equation. Your standard excess might be $1,000, but a flood claim could cost you $1,500 or $2,000 total once the additional excess is applied. In that situation, a lower standard excess makes more sense because the total out-of-pocket could already be significant. If you’re not sure what natural disaster risks apply to your address, it’s worth looking at an Australian property risk map or guide before locking in your choice.
Revisit your excess at renewal, not just at claim time
Life changes. A $2,000 excess that was comfortable three years ago might feel risky now if your savings have changed, or if you’ve added expensive contents. Every renewal is a chance to adjust your excess up or down by $250 or $500 to match your current situation. The Finder research points out that you can typically choose your excess when purchasing the policy — and most insurers let you adjust it at renewal too. It’s one of the simplest moves you can make to keep your coverage aligned with your real financial picture.
- Check your current standard excess amount on your latest policy document.
- Look up any additional excesses for flood, earthquake, cyclone, or bushfire in the product disclosure statement.
- Work out the maximum out-of-pocket amount you could comfortably pay right now.
- Compare your excess to your sum insured — very high excess on a low sum insured can leave you exposed.
- Adjust your excess at renewal if your savings, property value, or location risks have changed.
The checklist above is what I’d run through myself before signing a new policy. If any of those points are unclear, you can get independent legal or insurance guidance before committing to a number you’re not sure about.
I have a $500 excess now. Should I raise it to $2,000 to save on premium? ▾
Do additional excesses apply to every claim? ▾
Can I negotiate my excess with the insurer? ▾
Does excess apply to contents and building separately? ▾
What happens if I can’t afford my excess when I claim? ▾
Does a higher excess affect how much my premium goes up after a claim? ▾
Why Your Excess Deserves More Than a Quick Click
The number you set for your insurance excess has a direct line to your finances — both in the premium you pay every year and in the out-of-pocket cost you’d face if something goes wrong. The research from Finder and NRMA makes one thing clear: this isn’t a trivial checkbox on a quote form. It’s a lever that controls how much risk you carry and what you pay for the insurer to carry the rest. If you know your standard and additional excesses, and if you’ve matched them to what you could realistically pay, you’ve already avoided the most expensive mistake people make.
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 bushfire-ready property insurance tips for Australian homeowners.
Sources and Further Reading
Why your property insurance premium went up and what you can do about it — If you’re wondering what drives premium changes and how excess fits into the bigger picture, this post walks through the factors insurers use to set their prices.
Finder (2025). Home Insurance Excess. 🔗
NRMA Insurance (2025). Premium Excess and Discounts Guide. 🔗
