Insurance Excess

Understanding excess options for house insurance is essential for balancing affordable premiums with manageable claim costs. If you're a new homeowner or landlord, opting for a lower excess might help mitigate immediate financial burdens. Conversely, experienced property owners might prefer higher excesses, which not only lower premiums but also align with their ability to cover larger claims independently. Understanding these excess options ensures you choose a policy that fits your financial flexibility and risk tolerance.

What Is Excess in House Insurance

Excess is the amount you pay towards a claim before your house insurance covers the rest. It applies to both building and contents insurance policies. For instance, with a $500 excess, if you make a $4,200 claim, you pay $500, and the insurer covers $3,700.

Choosing a higher excess lowers your premium since you assume more risk. Conversely, a lower excess increases your premium but reduces your out-of-pocket costs when making a claim. Assess your financial situation to determine the best excess level for you.

New homeowners might prefer a lower excess to manage immediate expenses, whilst experienced property owners could opt for a higher excess to benefit from lower premiums.

Excesses can apply to multiple claims. Some insurers require separate excesses for different parts of your policy, such as structure and contents. Review your policy details to understand how excess is applied in various scenarios.

Selecting the right excess aligns your policy with your financial flexibility and risk tolerance.

Why Is Excess Necessary

To Keep Premiums Down

Excess eliminates small claims with high administrative costs compared to the claim's value. Requiring you to pay a portion of the claim reduces minor claims, helping insurers keep premiums lower for all policyholders.

To Deter Fraudulent or Trivial Claims

Excess deters fraudulent or unnecessary claims. It ensures you make claims only when necessary, reducing fraud risk and maintaining the insurance system's integrity. This shared responsibility model benefits the entire insurance pool.

To Encourage Care of Insured Property

Excess incentivises better care of your home and belongings. Without an excess, motivation to maintain and protect insured property might decline. Knowing you'll contribute financially to any claim encourages preventative maintenance and responsible property management.

Types of Excess

Choosing the right excess type aligns your house insurance with your financial situation and risk tolerance.

Compulsory Excess

Compulsory excess is set by your insurer and cannot be changed. It varies based on the claim type. For example:

• General Claims: $100


• Subsidence Claims: $1,000

This excess is deducted from your claim payout. For instance, with a $200 compulsory excess on a $600 claim, you receive $400 from your insurer.

Voluntary Excess

Voluntary excess is an additional amount you agree to pay on top of the compulsory excess. Increasing your voluntary excess can lower your annual premiums. However, ensure you can comfortably afford the total excess if making a claim. For example, opting for a $300 voluntary excess alongside a $200 compulsory excess may reduce your premium by $150 annually, but means you'll pay $500 total when claiming.

How Excess Affects Your Insurance Premium

Adjusting your excess directly influences your insurance premium. Higher excess amounts result in lower premiums, whilst lower excess amounts lead to higher premiums.

Premium Reduction

Opting for a higher excess decreases your monthly or annual premiums. For instance, increasing your voluntary excess from $400 to $2,000 can reduce your premium by $500 annually.

Balance Between Cost and Risk

Choosing a lower excess allows you to claim smaller amounts but incurs higher premium costs. Conversely, a higher excess lowers your premium but requires you to pay more out-of-pocket during claims.

Selecting the right excess aligns your insurance costs with your financial capabilities and risk management preferences.

Factors to Consider When Choosing an Excess

Personal Financial Situation

Assess your financial flexibility to determine the excess amount you can comfortably afford during a claim. A higher excess reduces your premium but requires more out-of-pocket expense if a claim arises. For example, opting for a $1,150 excess may lower your annual premium significantly compared to a lower excess.

Risk Tolerance

Evaluate your willingness to take on financial risk. If you prefer lower monthly or annual premiums, a higher excess may suit you. Conversely, a lower excess minimises out-of-pocket costs when making a claim, providing greater financial security.

Property Characteristics

Consider factors such as the age of your property, recent renovations, and maintenance history. Older properties or those with recent modifications may have a higher risk of claims, influencing your choice of excess. Homes in flood-prone areas or with unique features like heritage listings might come with higher compulsory excesses set by insurers.

Claim History

Review your past insurance claims. Frequent claims may prompt insurers to adjust your compulsory excess. If you have a history of significant claims, a higher voluntary excess could help lower your premium whilst managing future claim costs.

Policy Details

Understand how your excess applies to different parts of your policy. Some insurers require separate excesses for structure and contents. Also, excess applies per incident. For instance, multiple damages in a single claim may each require you to pay the excess amount, increasing your total out-of-pocket costs.

Underwriting Considerations

Insurers base excess decisions on comprehensive research and claims data. They balance premium reductions against potential claim payouts. Higher excess options might be limited by the insurer's underwriting policies, which assess the overall risk profile and your specific circumstances.

Balance Between Premium and Excess

Strike a balance between paying lower premiums and the potential cost during claims. For example, increasing your voluntary excess from $400 to $2,000 can reduce your annual premium by $500. Evaluate whether the premium savings align with your ability to cover higher excess costs if needed.

Multiple Excesses

Be aware that some policies apply excesses separately for different claim types or incidents. Understanding how multiple excesses work ensures you are prepared for various claim scenarios without unexpected financial burdens.

Choose an excess that aligns with your financial situation, risk tolerance, and property specifics to optimise your house insurance coverage effectively.

Benefits and Drawbacks of High vs Low Excess

Benefits of a Higher Excess

• Reduced Premiums: Increasing your voluntary excess lowers insurance premiums. For example, raising your excess from $400 to $2,000 can save you $500 annually.


• Financial Responsibility: A higher excess encourages you to care for your insured assets since you have more to lose if you make a claim.


• Fewer Claims: With a higher excess, you're less likely to file small claims, resulting in fewer overall claims and potentially maintaining or reducing premiums for everyone.

Drawbacks of a Higher Excess

• Increased Financial Burden: If you make a claim, a higher excess means paying more out of pocket. For instance, a $10,000 kitchen damage claim with a $1,600 excess leaves you $1,600 worse off when factoring in premium savings.

Benefits of a Lower Excess

• Ease of Accessing Claims: A lower excess allows you to claim for smaller, cheaper fixes without significant out-of-pocket costs.


• Peace of Mind: You won't need to pay a large sum unexpectedly, especially if you lack sufficient emergency funds.


• Flexibility: You can adjust your excess based on your risk comfort and financial situation, starting low and increasing it as needed.

Drawbacks of a Lower Excess

• Higher Premiums: Choosing a lower excess results in higher annual or monthly insurance premiums.


• Increased Claim Frequency: More accessible claims for smaller issues can lead to more frequent claims, potentially raising your premiums over time.

Premium Savings Comparison

How to Adjust Your Excess to Suit Your Needs

Choosing the right excess empowers you to tailor your house insurance to your financial situation and risk appetite. By assessing what you can comfortably afford to pay when making a claim, you strike a balance between manageable premiums and potential claim costs.

Opting for a higher excess can lower your annual costs whilst a lower excess offers greater peace of mind. Consider your property's specifics and your personal circumstances to make an informed choice. Regularly reviewing your excess options ensures your coverage stays aligned with your evolving needs, providing both protection and financial flexibility.

Frequently Asked Questions

What is excess in home insurance?

Excess is the amount you agree to pay towards a claim before your home insurance covers the remaining costs. It applies to both building and contents insurance. For example, with a $500 excess, if you make a $4,200 claim, you pay $500 and the insurer covers $3,700.

How does excess affect my insurance premium?

Choosing a higher excess can significantly lower your annual premiums. For instance, increasing your excess from $400 to $2,000 might reduce your premium by $500 each year. Conversely, a lower excess generally means higher premiums but reduces your out-of-pocket expenses when making a claim.

What is the difference between compulsory and voluntary excess?

Compulsory excess is set by the insurer and cannot be changed. It varies based on the claim type, such as $100 for general claims and $1,000 for subsidence. Voluntary excess is an additional amount you can choose to pay, which can further reduce your premium.

Should I choose a high or low excess for my home insurance?

Choosing a high excess can lower your premiums and reduce the number of small claims, but it means you'll pay more out-of-pocket if you need to make a claim. A low excess offers easier access to claims and peace of mind but results in higher premiums.

How do I decide the right excess for my house insurance?

Consider your financial situation, risk tolerance, and property characteristics. Assess how much you can afford to pay out of pocket in the event of a claim and balance this against the potential savings on your premium.

Can I have different excess amounts for building and contents insurance?

Yes, some insurers require separate excesses for different parts of your policy, such as structure and contents. It's important to review your policy details to understand how excess applies to each section.

Why do insurers require excess on home insurance policies?

Excess helps keep premiums down by discouraging small or trivial claims, covering administrative costs, and deterring fraudulent claims. It also encourages homeowners to take better care of their property to avoid having to make claims.

What factors should I consider when selecting excess?

Evaluate your financial flexibility, willingness to take on risk, property age and maintenance history, claim history, and the specific details of your insurance policy. These factors will help you choose an excess that aligns with your needs and circumstances.

Does increasing my excess save me money?

Yes, increasing your excess can lead to significant savings on your insurance premiums. For example, raising your voluntary excess can lower your annual payments, helping you manage your insurance costs more effectively.

Are there separate excesses for different types of claims?

Yes, some insurers have different excess amounts for various claim types, such as general damage versus subsidence. It's essential to understand your policy to know how much excess applies to each specific claim.

Who should opt for a lower excess?

New homeowners or landlords who may face immediate financial pressures might benefit from a lower excess. This provides easier access to claims and reduces out-of-pocket expenses when incidents occur.

What are the benefits of a higher excess?

A higher excess can lower your insurance premiums, encourage financial responsibility, and reduce the number of small claims. However, it increases the amount you need to pay if a claim arises, so it's important to choose an amount you can afford.