What is a car insurance excess and how much is it?

Digital Editor · 7 May 2021
When investigating what car insurance policy is best for your needs, insurers may offer you the option of including a ‘car insurance excess’. We take a look at what this means, how much it could cost you now and in the long run, and what it could mean when it comes time to make a claim.

In this article:

What does car insurance excess mean?

A car insurance excess is the amount of money you have to contribute towards the cost of having your car fixed in the event 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 are making
  • other conditions – such as who was driving when the accident happened or if you haven’t disclosed certain information

Compare Car Insurance with Canstar

If you’re comparing car insurance policies, the comparison table below displays some of the policies currently available on Canstar’s database for a 30-39 year old male seeking comprehensive cover in NSW without cover for an extra driver under 25. Please note the table is sorted by Star Rating (highest to lowest) followed by provider name (alphabetical) and features links direct to the providers’ websites. Check upfront with your provider and read the PDS to confirm whether a particular policy meets your needs before deciding to commit to it. Use Canstar’s car insurance comparison selector to view a wider range of policies. Canstar may earn a fee for referrals.

How does car insurance excess work?

Car insurance excess is a feature that most insurers offer or include in their products. The ‘excess’ part of the policy kicks in when you go to make a claim. For example, consider this hypothetical scenario:

  1. You take a policy that includes a $500 excess on car repair claims.
  2. Then, you have an accident, and the repair bill is $1,000.
  3. Next, you lodge a claim with your insurer and it is successful.
  4. As a result, you pay the first $500 of the repair bill.
  5. The insurer pays the remaining $500.

However, if you have an accident but the amount of the claim is below your excess threshold, you would not get any financial payout from your insurer. Consider this hypothetical scenario:

  1. You take a policy that includes a $500 excess on car repair claims.
  2. Then, you have an accident, and the repair bill is $500.
  3. Next, you lodge a claim with your insurer.
  4. The amount of the claim doesn’t exceed your threshold, so you pay $500.
  5. The insurer pays $0.

In the later case, it would be unlikely that a policyholder would make a claim at all. Rather, they’d likely pay the repair bill themselves as they would usually choose their excess as part of applying for a policy, and consider this as part of weighing up whether to submit a claim.

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

Sometimes, the excess is a compulsory part of the policy, so irrespective of the price or conditions of the policy, you would have to contribute towards the cost of the claim. Other types of policies offer it as a voluntary option – you are able to choose if you want to pay an excess and how much that excess will be, sometimes from different choices.

Often, insurers will offer a cheaper premium price for paying 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 were to opt for a higher excess of, say, $1,000.

Compare Features: Comprehensive Car Insurance

What is the purpose of car insurance excess?

Many insurers say that the purpose of car insurance excess is to allow them to offer a lower upfront premium. Having an excess on a car insurance policy partially mitigates risk for the insurer, as well as reducing the likelihood of smaller claims that may not be cost-effective to process.

It’s important to be aware that choosing an excess makes your upfront premium cost lower “because some of the risk has now been transferred from your insurer back to you”, insurer NRMA states.

Budget Direct adds: “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 are the different types of car insurance excess?

Different types of 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 (an excess payable if the driver involved in a crash was not nominated in your policy)
  • glass/windscreen excess

What is standard driver excess or basic excess?

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 would need to pay $500 towards your insurance claim before the insurer would start to contribute towards the cost of a claim. This type of excess is the compulsory kind, and it cannot typically be negotiated. It can differ between policyholders because it may be altered by factors such as where you park your car, what state you are in and the age of your car. Other types of excess would be in addition to any standard excess in a policy.

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

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 could differ between insurers). For some insurers, the amount of the excess depends on whether or not the driver was 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. This includes a learner driver (and when they move on to being a P-plater). Some policies may require a learner or P-plater to be listed, while others do not.

What is unlisted driver excess?

Some insurers require that anyone driving an insured car is listed on the policy, and will impose an additional excess if the unlisted driver is involved in a crash that requires a claim to be made. This might be referred to in a car insurance policy as an undisclosed driver excess, unlisted driver excess or non-nominated driver excess, with the requirement varying from insurer to insurer. It is a good idea to check with your insurer before signing up to see if this excess may apply.

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 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 guide lists special excess as applying “where you have modified your vehicle or added nonstandard accessories 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 could 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 preemptively reduce or even waive the excess on a claim related to your windscreen or windows. However, choosing this option could increase your premiums.

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

Whether or not it is 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 when it comes time to claim. However, if you had to make a claim, you would be required to pay the excess in order to have the claim paid out by the insurer.

Questions to consider when deciding on car insurance excess include:

  • Will a higher excess reduce your car insurance premiums?
  • Can you afford to pay the higher excess if you have an accident?
  • Does the same excess apply to you (as the owner) and to anyone else who might drive your car?
  • What is your driving history? What is the driving history of other drivers you will nominate on your policy?
  • How expensive is it to fix your make/model of car if you were to have an accident?
  • How frequently do you use your car?

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 for the other driver and vehicle(s), 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 the other party is not insured, can’t be found or simply refuses to pay, you may find yourself in a difficult situation financially, with this condition not being met. This might lead to a dispute resolution process and potential legal action.

Car insurance terms and conditions can vary, and it is recommended to read the PDS first if you are considering purchasing a policy from a provider. You can compare car insurance with Canstar. 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.

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

If you are at fault in an accident, you will 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 also explains that an insurer might consider you are claiming for two incidents, or even under two different policies. Your home insurance policy and car insurance policy might both apply, for example, if you hit the accelerator of your car instead of the brake, and accidentally drive it into your family home.

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 states that an insurer “cannot refuse to process your claim because you failed to pay the excess”, adding this advice: “If you can claim but cannot afford to pay the excess upfront because you are in financial hardship, then you can ask your insurer for an arrangement to repay your excess by instalments. You can also ask the insurer to deduct the excess from any payout you receive.”

The helpline gives a list of recommended actions someone in financial hardship could take if faced by a car accident debt, which includes that it could be a good idea to seek legal advice “if you’re not sure whether you’re responsible for the damage”, to claim “a reasonable amount” of money on any insurance policies you may have, to liaise with the insurance company or debt collector if you can’t pay, and to seek financial counselling from the helpline if you need to (phone 1800 007 007).

The helpline states that if you can’t come to an arrangement with your insurer, you can make a complaint to the Australian Financial Complaints Authority (AFCA) online or by phoning 1800 931 678.

Why not use our comparison tool to find an outstanding value car insurance policy?

Additional reporting: James Hurwood
Cover image source: Vera Petrunina/Shutterstock.com

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