Insurance Excess

The excess is the amount you pay out of pocket on each claim before the insurer pays anything. A $4,000 storm claim on a policy with a $1,000 excess means the insurer pays $3,000 and you pay the first $1,000. The excess is charged per claim, not per year - two claims in twelve months means two excesses - and the setting is the cheapest premium lever on the market: raise the excess, and the premium falls because the insurer is not funding the small stuff.

The Australian versions differ by product. Car policies add an age excess for drivers under 25 - an extra few hundred dollars per claim on top of the standard. Home and contents policies apply the standard excess per event. Private hospital cover charges an excess per admission, and it is optional on many tiers. The excess is the income protection waiting period's cousin: both are the self-funded slice of the claim, and both are priced by the same trade-off.

The mechanics run on the claim arithmetic. A $6,000 storm claim with a $1,000 excess pays $5,000 from the insurer and $1,000 from you; the same claim on a policy with a $2,000 excess pays $4,000 and $2,000. The premium prices the difference: a $1,800-a-year home and contents policy with a $500 excess drops to roughly $1,400 with a $2,000 excess, because the insurer is no longer funding the small events.

The break-even is the part worth running. The $400 a year of premium saving pays for the extra $1,500 of excess at a claim every 3.75 years: claim more often than that and the higher excess is losing, claim less and it is winning. Most households claim on home and contents less than once a decade, which is why the higher excess wins for almost everyone - and why the buffer behind the excess is the part that makes it safe.

The Australian variants add their own lines. Car policies add an age excess - roughly $400 to $600 per claim for drivers under 25 - on top of the standard excess. Private hospital cover charges an excess per admission, optional on many tiers, which is the same trade at hospital scale. The emergency savings calculator sizes the buffer the excess depends on, and the income protection insurance entry covers the waiting period, which is the same self-funded slice at income scale.

For an Australian reader, the excess is the premium lever that is entirely in your control - no comparison site, no switching, no underwriting: just the setting on the policy you already hold. The trade is real: raise the excess from $500 to $2,000 and the premium falls by roughly a fifth, which is $400 a year compounding in the offset rather than the insurer's revenue. The excess is also the one setting that prices honesty: the insurer assumes you will not claim small, and the premium rewards you when you don't. The catch is the buffer: the excess is self-funded, and the emergency fund entry covers the sizing.

A colleague named Brent (yes, that Brent) claimed a $900 windscreen on a $500-excess policy, then claimed another the following year. The insurer paid $400 twice, lost the no-claim discount both times, and repriced the policy upward at renewal - the two claims cost more than the two windscreens. The highest-leverage thing most Australians can do is raise the excess to the edge of the emergency fund, claim only above it, and let the premium saving compound. The emergency savings calculator sizes the edge.