Why do we pay excess on insurance?

An insurance excess (or deductible) is the first portion of any claim amount that you agree to pay out of pocket, while your insurer covers the remaining costs.

💡 Why We Pay Excess

• Keep premiums affordable: Sharing risk prevents insurers from raising overall rates for everyone.
• Stop tiny claims: It prevents people from filing expensive claims for minor scratches or dents.
• Encourage care: It gives policyholders a financial incentive to protect their property and drive safely.
• Reduce admin costs: Processing low-cost claims creates heavy paperwork and staffing expenses that drive up costs.

📌 How Excess Types Work

• 📊 Compulsory Excess
  • Set by insurer: Based on your age, vehicle type, and risk profile.
  • Non-negotiable: You cannot change or remove this baseline fee.
• 📉 Voluntary Excess
  • Chosen by you: An optional extra amount you agree to pay on a claim.
  • Lowers premiums: Selecting a higher voluntary amount reduces your regular policy cost.

You cannot legally refuse to pay an insurance excess, as it is a binding part of your policy contract agreed to when you purchased coverage.

Why You Must Pay

• Contractual agreement: Your insurance policy sets out the combined compulsory and voluntary excess amounts you owe per claim.
• Upfront requirement: Most insurers require you to pay this fee before repairs begin or deduct it directly from your final settlement payout.
• Refusal consequences: If you refuse to pay, your insurer can halt your claim, refuse to authorize vehicle repairs, or cancel your policy for breach of terms.

Exceptions and Refunds

• Non-fault accidents: If another driver is completely at fault, your insurer may try to recover the excess from the liable party's insurance.
• Reimbursement: Once the other insurer accepts liability and pays out, your provider should refund your paid excess. However, you usually still have to pay it initially.
• Uninsured driver promises: Some comprehensive policies waive or refund the excess if you provide the exact details of an uninsured driver who hit you.

Choosing a higher voluntary excess (the amount you agree to pay toward a claim on top of your mandatory compulsory excess) lowers your regular insurance premium, but it means you pay more out-of-pocket if an accident happens.

How Excess Works

• Compulsory excess: A fixed, mandatory amount set by your insurer based on factors like your age and experience.
• Voluntary excess: An optional amount you choose to add on top to show you accept more risk.
• Total excess: The sum of both compulsory and voluntary amounts, which you must pay (or have deducted from your payout) during a claim.

When a Higher Excess is Better

• You are a safe driver: If you rarely or never make claims, you save money on your yearly bill without ever paying the higher excess.
• Lower premiums: Opting for a higher excess reduces your upfront policy costs, which can be helpful if your quotes are very high.
• You have emergency savings: If you have cash set aside to cover the total excess immediately if an accident occurs.

When a Higher Excess is a Bad Idea

• You cannot afford the cash payout: If a crash happens and you do not have enough money to pay the total excess, your insurer will not release the repair funds or process your claim.
• Small claims: If the damage cost is lower than your total excess, you cannot claim anything at all.
• Diminishing returns: Raising your voluntary excess past a certain point (like £250 or £500) stops lowering your monthly price significantly.

For more comparisons on finding the right balance, check the guide at GoCompare or read the insights on Total Loss GAP.

An insurance excess is your set contribution toward the cost of a claim before your insurer pays the remaining amount.

Why Insurers Charge an Excess

• Lower premiums: Sharing the risk reduces the cost of your regular insurance payments. If you agree to pay more when an incident happens, the insurer charges you less for the policy.
• Fewer small claims: It stops people from making tiny claims that cost more to process than the repair itself. This keeps overall insurance prices reasonable for everyone.
• Shared responsibility: It proves you have a financial stake in looking after your insured item and avoiding preventable accidents.

When You Might Have to Pay It

• At-fault accidents: When you cause a crash or damage your own property.
• Unidentified third parties: If your car is hit in a parking lot or vandalized, and you cannot find or name the person responsible.
• Weather or theft: Incidents like storms, hail, or theft usually require the basic excess because no other person can be held liable.
• Additional driver fees: Extra charges apply if a young, inexperienced, or unlisted driver was behind the wheel during the incident.

When You Might Not Pay It

• Not at fault: If another driver is completely to blame and you have their correct name, phone number, address, and car registration, your insurer may waive the excess because they can recover the costs. You can review details on this process through resources like Budget Direct or Allianz Australia.

If your insurance excess is $500, it means you must pay the first $500 of any approved claim you make, and your insurance company will pay the rest.

How It Works in Practice

• Example: If your car or property suffers $2,000 worth of damage, you pay $500 out of pocket, and your insurer pays the remaining $1,500.
• Small Damage: If the repair cost is less than $500 (such as a $300 dent), you must pay the full amount yourself, meaning it is usually not worth filing a claim.

Key Things to Know

• When you pay it: You typically pay the $500 directly to the repair shop before your car is fixed, or the insurer deducts it from your total payout if your car is written off.
• Fault exceptions: If you are in a car accident that is completely someone else's fault and you can provide the other driver's valid details (like their name, phone number, and license plate), your insurer will often waive your excess.
• Extra fees: Your $500 is usually your basic excess. Additional fees (like an age excess for drivers under 25) might get added on top of that $500 if a young or unlisted person was driving during the incident.