Contents

Key Takeaways:

  • Insurance excess is the amount you pay out-of-pocket when you make a claim
  • Higher excess = lower premiums (and vice versa)
  • You only pay excess when claiming; different claims = different excesses

If you’ve ever looked at an insurance policy and wondered what ‘excess’ means, you’re not alone. It’s one of the most common questions we get at Tank Insurance, and for good reason - it directly impacts what you’ll pay when things go wrong.

Here’s the thing about excess: it’s not just a number on your policy. It’s a strategic choice that affects your premiums, your claims experience, and your financial risk. Let’s break down exactly what it means, when you’ll pay it, and most importantly - how to pick the right amount for your situation.

What is excess in insurance?

Excess is the amount you agree to pay out of your own pocket when you make a claim on your insurance policy. Once you pay this amount, your insurer covers the rest.

Think of it as a cost-sharing arrangement. You and your insurance company split the financial responsibility. If you’ve got a business pack with a $1,000 excess and you claim for $5,000 in property damage, you’ll pay the $1,000, and your insurer covers the remaining $4,000.

It sounds straightforward, but here’s where it gets interesting: excess isn’t just a fixed cost. It’s a trade-off. A higher excess lowers your premium, but it means you’ll pay more when you claim. A lower excess means higher premiums but less out-of-pocket if something happens. Getting the balance right is crucial.

Why does excess exist?

Excess exists for a few key reasons - and understanding them helps you make smarter choices when picking a policy.

1. It keeps premiums affordable. A higher excess means you’re taking on more of the financial load if something goes wrong. Because of that, insurers charge lower premiums. Many business owners opt for this trade-off to keep their annual costs down.

2. It reduces small claims. By having an excess, insurers discourage frequent minor claims. This keeps their costs down, which benefits everyone through more competitive premium rates. It also reduces the admin burden of processing small claims.

3. It encourages responsible behaviour. When you know you’ll pay an excess, you’re more motivated to prevent claims in the first place. Safe driving, secure premises, proper maintenance - these things matter more when you’ve got skin in the game.

Over the last few years, we’ve seen this shift play out in our own book of business. Clients who choose higher excesses genuinely take risk management more seriously. They’ve told us it keeps them more vigilant.

What are the different types of excess?

Not all excesses are created equal. Depending on your policy, you might encounter several different types.

Standard excess. This is the default amount you agree to when you take out a policy. It’s usually fixed and applies to most claims. A commercial property policy might have a $500 standard excess, for example.

Voluntary excess. You can choose to increase your excess to lower your premium. Say you’re comfortable paying $2,000 instead of $1,000 on a business pack - insurers will usually give you a premium discount in return. This is where the real trade-off happens.

Compulsory excess. The insurer sets this amount, and you can’t change it. It’s often based on factors like your age (in personal insurance), driving record, or the specific type of cover. If you’re a director seeking Directors and Officers insurance, underwriters might impose a $5,000 compulsory excess based on your risk profile.

Special excess. Some policies include extra excesses for specific situations. Your business pack might have a $1,000 standard excess but a $5,000 excess specifically for flood claims. These are always spelled out in your policy wording, so read carefully.

Most Australian business insurance policies include some form of excess. It’s a standard risk-sharing mechanism across public liability, professional indemnity, commercial property, and business packages.

When do you pay an excess?

Here’s the key: you only pay excess when you make a claim, and even then, it depends on the specifics.

When you make a claim, you’ll usually pay upfront. If your business experiences a loss or damage, you’ll pay the excess before repairs start or have it deducted from the payout. For example, if your shop window breaks and repair costs are $3,000 with a $500 excess, you’ll be out $500 of that cost.

If you’re not at fault, you might not pay. Say another driver hits your company vehicle. If your insurer recovers costs from the other party (or their insurer), you might not pay your excess. This depends on your policy and the circumstances, so always ask.

Multiple claims = multiple excesses. If your business makes two separate claims in a year - storm damage in winter, theft in summer - you’ll typically pay the excess for each claim. So budget accordingly.

Some excesses only apply to specific events. Your property policy might have a standard excess for most claims but a higher excess specifically for natural disasters or water damage. Check your Product Disclosure Statement (PDS) carefully.

Our experience at Tank Insurance shows that understanding when you’ll pay excess prevents nasty surprises during claims. We’ve seen clients shocked to discover they’d need to pay multiple excesses for multiple claims in the same year. A quick conversation upfront with your insurance broker saves that stress.

How much is a typical excess in Australia?

The amount varies depending on the type of insurance and your specific risk profile. Here’s what we’re seeing across the Australian market in 2026:

Car insurance: $300 to $1,500, depending on vehicle value, driving history, and whether you’ve chosen a voluntary excess. Young drivers often face a $500-$1,000 compulsory excess on top of the standard amount.

Home insurance: $200 to $1,000 for standard claims. Natural disaster excesses are much higher - often $5,000+ for flood or earthquake cover.

Business insurance: $500 to $5,000, depending on the business type and coverage. A small trading business might have a $500 excess on public liability, while a construction firm might negotiate a $2,500 or $5,000 excess.

Based on the hundreds of quotes we’ve provided this year, we’re seeing most SMEs settle on excess amounts between $500-$2,500 across their business packages. Larger firms and those in higher-risk industries go higher.

Always check your Product Disclosure Statement (PDS) to confirm exact amounts. Excess can vary significantly between insurers for the same business profile.

How do you choose the right excess for your business?

Picking the right excess is about balancing your premium against what you can actually afford to pay if you need to claim.

Consider your cash position. A higher excess lowers your premium, but only choose it if you can genuinely afford to pay it. If a $2,000 claim would strain your cash flow, a lower excess might cost more annually but save you stress later. This is especially important for small businesses with tight working capital.

Assess your actual risk. If you run a low-risk professional services business, a higher excess might make sense. If you run a construction firm with regular high-risk work, a lower excess reduces your exposure. Think about what claims look like in your industry.

Talk to a broker who knows your business. This is where we come in. At Tank Insurance, we work with your actual numbers - turnover, claims history, assets, employee count. We can model different excess levels and show you the premium difference. That’s when you can make an informed choice, not guess.

Many of our clients are surprised to find that the premium difference between $500 and $2,000 excess is smaller than they expected. Sometimes it’s only $200-$300 a year. Once you see that number, choosing becomes clearer.

Frequently Asked Questions

Can I avoid paying excess?

In some cases, yes. If you’re not at fault in an incident and the insurer recovers costs from the other party, you might not pay. But for most claims on your own business, yes - the excess applies. It’s built into the policy from day one.

Does every insurance policy have excess?

Most general insurance policies do - business packs, public liability, commercial property, landlord insurance. But some niche products (like certain travel or specialist coverages) might not. Always check your specific PDS.

Can I change my excess after I buy the policy?

You might be able to adjust your voluntary excess when you renew, but compulsory excesses are fixed by the insurer. Some policies allow mid-term changes, but this isn’t standard. Ask your broker about your options.

What happens if I can’t afford to pay the excess when I need to claim?

This is a real problem, and it’s why choosing excess carefully matters. Some insurers offer payment plans, but don’t count on it. If you can’t pay the excess, you can’t access the claim. This is another reason to talk to a broker - we help you avoid this scenario.

Is a higher excess always better for lowering premiums?

Not always. The premium savings for going from $1,000 to $5,000 excess might be only $300-$400 annually. That’s a trade-off between a small saving and a much larger out-of-pocket cost if you claim. Run the numbers before deciding.

Getting the excess decision right

Understanding excess is foundational to understanding your insurance. It’s not just a number - it’s a decision that affects your premiums, your claims experience, and your financial security when things go wrong.

Here at Tank Insurance, we work with business owners and professionals across Sydney and Australia. We’ve seen hundreds of excess decisions, and we know what works. We can help you balance premiums and excess to suit your actual business situation.

Not sure if your current excess is right for you? Reach out to Tank Insurance at 02 9000 1155 or team@tankinsurance.com.au. We’ll review your situation, model different excess levels, and help you make a confident choice.

Feedback

Was this helpful?