powering smart financial decisions

What is excess in car insurance?

What is excess in car insurance?

There are many decisions that you need to take when buying a car insurance policy, one of which is deciding on the excess or the percentage of the insurance coverage that you agree to pay when you file an insurance claim.

Since the insurer won’t have to bear the full claim settlement, deciding on a higher excess can help lower the cost of your car insurance premium. However, given that you may only need to pay the excess in the rare instance that the worst does occur, you will need to consider your financial wellbeing when deciding on the amount. 

Why do I need to decide the excess in my car insurance policy?

When you buy a car insurance policy, the insurer may ask you to set a certain amount as the excess, which you will be expected to cover when filing an insurance claim. Suppose you are at fault for an accident, and you are liable to pay the treatment costs, damages, and compensation for the other driver. In that case, your insurance provider will only pay you a claim settlement if the costs are more than the excess amount. In some cases, the insurer may ask you to pay the entire cost and then reimburse you the claim settlement amount after deducting the excess. 

What you pay for your insurance policy can depend on how much you choose to pay as excess. If you pay a greater excess, the amount the insurer will have to cover is lowered and so is your insurance premium.

While some insurers may be okay with you buying a zero excess car insurance policy, this is not a recommended practice as it will likely result in you having to pay a much higher premium. However, depending on your profile and driving history, you may not be able to lower the basic excess for car insurance below a certain minimum.   

What is a voluntary excess in car insurance?

Usually, your car insurance premium is based on your age, gender, and area of residence as well as your driving and claims history. In the standard scenario, you suggest a certain amount as the excess when buying the policy, and the insurer agrees to cover whatever remains to be paid when you file a claim. Even if the insurer insists on a minimum amount as excess, you can choose to pay a voluntary excess higher than the minimum and bring down your car insurance premium accordingly. 

However, you should consider your financial situation before deciding on the voluntary excess to make sure this is within your budget. You may want to set aside the amount in a particular bank account to make sure you don’t fall short when it is needed. You should ask your insurer about special circumstances, such as filing a windshield damage claim, in which you may be asked to cover a higher excess than the amount agreed. You can also consider finding out if there are situations when you may not have to pay the excess at all.

When do you pay excess on car insurance? 

Usually, if you are at fault for an accident, you will have to pay the car insurance excess amount as part of the compensation or cost of damages for which you are liable, with the insurer covering the amount over and above the excess. You may also have to pay the excess if you were in an accident but the at-fault driver cannot be traced or was uninsured. While you can dispute paying the excess in some cases, it is possible that your insurer may deduct the excess from the settlement or refuse to cover the cost of damage.

In Australia, as per the Australian Financial Complaints Authority’s regulations, you may get a waiver of the excess on your car insurance if you can establish that you are facing financial troubles. However, you may still need to pay additional excess in some cases, such as when someone not listed on your insurance policy caused an accident.

Some insurers may also ask you to cover a higher excess even if the accident was caused by someone listed on your policy if that person is considered to be a high-risk driver. Younger drivers, especially those under 21 years of age, may find that their insurer will insist on a certain minimum amount as the excess.  

Did you find this helpful? Why not share this article?

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.



More car insurance articles

More articles? Read more here

Learn more about car insurance