What is a car insurance excess and how does it work?

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What is car insurance excess?

A car insurance excess is the amount of money you have to contribute towards the cost of having your car fixed in the event that you make a claim. The insurer generally covers the rest of the repair bill (up to their coverage limit).

You may have to pay more than one type of excess if you make a car insurance claim. Your policy’s Product Disclosure statement (PDS) will explain how much excess you need to pay and when you are required to pay it. It’s important to know this information, as there are different types of excesses that kick in depending on:

• what type of policy you have
• what type of claim you’re making
• other conditions, such as who was driving the vehicle when the accident happened

How does car insurance excess work?

Car insurance excess is a feature that most insurers offer or include as part of their products. The ‘excess’ part of the policy kicks in when you make a claim. Say, for example, that you take out a policy that includes a $500 excess on car repair claims. You have an accident and the repair bill is $1000. You lodge a claim with your insurer and it is successful, as a result, you pay the first $500 of the repair bill, the insurer pays the remaining $500.

Should you have an accident and the amount of the claim is below your excess threshold, though, you will not get any financial payout from your insurer. Consider a different example in which you take out a policy that includes a $500 excess on car repair claims. You have an accident and the repair bill is $500. You lodge a claim with your insurer, but as the amount of the claim doesn’t exceed your threshold, you pay $500. The insurer pays $0.

In the latter case, it would be unlikely that a policyholder would make a claim at all. Rather, they would likely pay the repair bill themselves, since the insurer would not contribute to the bill. Even without lodging a claim, policyholders can still have a claims adjustor review the damages to get an accurate idea of the repair bill.

What’s the difference between compulsory excess and voluntary excess?

Sometimes, an excess is a compulsory part of a policy, so irrespective of the price or conditions of the policy, you have to contribute towards the cost of the claim. Other types of policies offer an excess as a voluntary option — you can choose if you want to pay an excess, and how much that excess will be.

Often, insurers will offer a cheaper premium price in return for a higher voluntary excess. For example, you may be quoted one price to have a $500 excess but be offered a lower premium price if you opt for a higher excess of, say, $1000.

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What is the purpose of car insurance excess?

Many insurers say the purpose of car insurance excess is to allow them to offer lower upfront premiums. An excess on a car insurance policy partially mitigates risk for the insurer, it also reduces the likelihood of smaller claims that may not be cost-effective to process.

It’s important to be aware that choosing an excess reduces your upfront premium costs because some of the claim’s risk is transferred from your insurer back to you.

Budget Direct says that “a car insurance excess is designed mainly to eliminate small claims that have a high administrative cost relative to the value of the claim — which in turn helps keep your premiums down.”

What is the average car insurance excess in Australia?

Excess options offered by car insurance providers in Australia vary, so the average excess for car insurance is subjective. If you want a general idea of how the average excess might look, though, Canstar assumes the following ‘target excess’ in each state and territory when compiling the annual Car Insurance Star Ratings and Awards:

• New South Wales: $1,000
• Victoria: $900
• Queensland: $900
• South Australia: $800
• Western Australia: $800
• Tasmania: $800
• Northern Territory: $800

What are the different types of car insurance excess?

Different types of car insurance policies include different types of excesses. Policyholders may be required to pay more than one excess, depending on the circumstances of the claim. The most common varieties of car insurance excess are:

• Standard driver excess
• Age excess
• Unlisted driver excess
• Glass/windscreen excess

What is standard excess car insurance?

Typically, this is the type of excess that you pay no matter what the claim is or the circumstances of the claim. For example, if you have a policy with a ‘standard’ or ‘basic’ $500 excess on all claims, you need to pay $500 towards your insurance claim before the insurer contributes towards the cost of a claim.

This type of excess is typically compulsory and can’t be negotiated. It can differ between policyholders because it can be affected by factors such as where you park your car, what state you live in and the age of your car. Other types of excess are typically additional to any standard excess in a policy.

Standard driver excess is also often called a ‘basic excess’ by insurers. Separately, a voluntary excess could apply, which you might choose to reduce your car insurance premium further.

What is age excess?

An age excess applies when a policy requires a policyholder to pay a certain amount towards the cost of a claim if the driver of the vehicle is below a certain age (typically 21 or 25, but this differs between insurers). For some insurers, the amount of the excess depends on whether or not the driver is listed on the policy.

Tip: it’s a good idea to call your insurer if you plan to have a younger person drive your vehicle, especially a learner driver or a P-plater. Some policies require a learner or P-plater to be listed, while others do not.

What is unlisted driver excess?

Some insurers require anyone driving an insured car to be listed on the policy, and will impose an additional excess if an unlisted driver is involved in a crash that involves a claim.

This can be referred to in a car insurance policy as an undisclosed driver excess, unnamed driver excess, unlisted driver excess or non-nominated driver excess. Requirements vary from insurer to insurer, so it’s a good idea to check with an insurer before signing up to see if this excess applies.

What is licence excess or inexperienced driver excess?

Some insurers also require policyholders to pay an excess depending on how long the at-fault driver of the insured vehicle has held their licence. For example, this could include an older driver who has only recently qualified to hold a licence. In this instance, the age excess might not apply, but because the driver has only had their licence a short time, the policyholder could be required to pay an excess.

What is driver history excess?

Some insurers will also charge a driver history excess if the at-fault driver for the claim had their licence cancelled, suspended, disqualified or restricted in the three years prior to the start of the policy. This excess is usually in addition to any other excess, such as an unlisted driver excess.

What is special excess?

Special excess is a term some insurers use to describe an excess outside the normal limits of other excesses. For example, Toyota Insurance’s Comprehensive Motor Vehicle Insurance product disclosure statement (PDS) defines special excess as applying when  “you have added a performance modification to your vehicle which may increase the cost of repairs following a claim; or because of the driving, criminal or insurance history of you or any regular driver listed on your policy schedule.” This can be added to the cost of any other excesses you may have to pay.

What is glass and windscreen excess?

Some policies may allow you to pre-emptively reduce or even waive the excess on a claim related to your windscreen or windows. But choosing this option could increase your premiums.

Is it better to have a high or a low car insurance excess?

Whether or not it’s better to have a high or low insurance excess depends on your personal circumstances. Typically, insurers will offer a lower upfront premium if you are prepared to pay a higher excess should you need to make a claim. But if you have to make a claim, you’ll be required to pay the excess, typically in full, in order to have the claim paid out by the insurer.

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How much excess should I pay on car insurance?

Again, there is no right or wrong answer to the question of how much you should pay on a car insurance excess. If you want to save on premiums, nominating a higher excess could save you some money, but it’s important to know if you need to claim on your car insurance, paying your excess could negate any potential savings you’ve made.

Ultimately, the best excess for car insurance is the one that suits your needs and budget. Nominating a lower excess might mean higher premiums, but could also provide peace of mind that you won’t have to make too large an upfront payment if you need to claim on your car insurance.

Can I avoid paying car insurance excess?

If you are in an accident and are not at fault (either wholly or partially) and can provide details of the other driver(s) and vehicle(s) involved, you may not have to pay the excess that applies on your car insurance policy.

Your insurer may consider this to be a ‘no fault accident’ and instead pursue the at-fault driver’s insurance company for the cost of the claim to fix your car.

Keep in mind that if you can’t provide the details of the other driver(s) involved in the accident, or they deny blame, you could still have to pay your excess.

Car insurance terms and conditions vary, so it’s recommended that you always read the PDS of any policy you are considering purchasing. You can compare car insurance with Canstar. In addition, our Car Insurance Star Ratings and Awards include an Outstanding Claims Service Award that recognises providers delivering customer satisfaction for the car insurance claims process.

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May I be asked to pay more than one car insurance excess?

If you’re at fault in an accident, you’ll typically be required to pay an excess (or several excesses) based on your car insurance policy. For example, you might be asked to pay a basic excess and a voluntary excess (if you have chosen this as part of your policy).

The Financial Rights Legal Centre in NSW explains that, depending on the event, an insurer might consider you’re claiming for two incidents, or even under two different policies. For example, if you hit the accelerator of your car instead of the brake and accidentally drive it into your family home, your car insurance covers for the damages to your car, and your home insurance covers the damages to your home.

It’s worth noting that some policies feature one-event, one-excess clauses, to limit the number of excesses a claimant must pay should they claim on multiple policies for one event.

What happens if I cannot afford to pay car insurance excess?

The National Debt Helpline says that if a policyholder is in financial hardship and is unable to pay a car insurance excess, they should talk to their insurer. The helpline gives a list of recommended actions someone in financial hardship can take if faced with a car-accident debt.

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