How excess really works, and when a higher one saves you money

Excess is the one lever on an insurance quote that almost everybody moves and almost nobody calculates. Slide it up, the premium falls. Slide it down, the premium rises. Whether that is a good trade depends on a single number that is easier to estimate than most people assume.

First, the word

In Australia it is an excess. In the United States the same thing is a deductible. They mean the same thing: the amount you contribute towards a claim before the insurer pays the rest. If you are reading an Australian insurance site and it says deductible, the content was written somewhere else and you should be slightly more careful with everything else on the page.

How the arithmetic works

Take a home policy with two options:

• $500 excess, $1,640 a year
• $2,000 excess, $1,290 a year

The higher excess saves you $350 a year and costs you an extra $1,500 on any claim you make. The break-even is $1,500 divided by $350, which is 4.3 years. In plain terms: if you claim less often than roughly once every four and a half years, the higher excess wins.

That is the whole calculation. Divide the extra excess by the annual saving, and compare the answer to how often you actually claim.

Break-even in years = (higher excess minus lower excess) divided by (annual premium saved).

The number people get wrong is their own claim frequency

Across the Australian market, a home policy produces a claim roughly once every eight to twelve years, depending heavily on location. A motor policy is far more frequent, often once every four or five years for a car driven daily in a capital city. That difference is why the same excess decision goes opposite ways on the two products for the same household.

If you live somewhere that gets hit repeatedly, this changes. A house in a hail corridor in western Sydney or on a flood plain in the Northern Rivers is not claiming once a decade, and the higher excess stops being free money.

The part the calculator misses

The break-even arithmetic assumes you can actually produce the excess on the day. A $2,000 excess saves you money on average and is useless if a $2,000 bill arriving without warning would mean you delay lodging, delay the repair, or live with the damage. Insurance exists to convert an unmanageable shock into a manageable one, and an excess set higher than your emergency savings quietly undoes that.

The honest rule is: take the highest excess you could pay from savings tomorrow without borrowing, and not a dollar more.

Excesses that stack

On motor especially, more than one excess can apply to a single claim. A basic excess of $695 plus an age excess of $600 for a driver under 25 plus an inexperienced driver excess of $400 is $1,695 on one claim, and every one of those is disclosed on the certificate of insurance. The undeclared driver excess, usually around $1,500, is the one that surprises people, and it is entirely avoidable by listing everyone who drives the car.

On property, excesses generally do not stack, but a specific peril excess can replace the standard one. An earthquake excess or an unoccupied property excess is a substitution, not an addition. If a policy document does not make that clear, ring and ask, and get the answer in writing.

When the excess is waived

There are a few cases where you pay nothing. A not-at-fault motor claim where you can identify the other driver and their vehicle usually carries no excess, because we recover from their insurer. A windscreen claim under an excess-free glass option carries none, once per period. And make safe work after a storm is never subject to an excess, because it is not a settlement, it is emergency work.