When you take out a general insurance policy in Australia, the premium you pay reflects the insurer’s assessment of how likely you are to claim, and how big that claim might be. Broadly, insurers look at two kinds of risk: the risk attached to the insured item or activity (say, the car, home or trip), and the risk attached to you as the policyholder.
On the item side, underwriters consider features like the age and condition of your car, the value of your home and contents, the safety of the location where the property is kept, and whether any recent losses have been recorded. On the customer side, insurers look at your claims history, your age or life stage, and sometimes additional details that data shows correlate with likely claims costs. All these factors are combined into a single annual premium: the amount you pay to transfer the financial risk to the insurer.
What does the excess do?
The excess is the portion of any claim you agree to bear yourself. Its role is straightforward: by choosing a higher excess, you tell the insurer you’re willing to cover more of the initial loss. That reduces the insurer’s exposure on each claim, which in turn lowers the premium. Conversely, if you’d prefer to minimise your out-of-pocket cost at claim time—even if that means paying more month to month—a lower excess will push the premium up.
There’s no single formula that every insurer uses, but the trade‑off always points in the same direction. Think of it as a seesaw: when one side goes up, the other comes down.
How can you use that knowledge?
Start by working out what you could comfortably pay if you had to claim tomorrow. That figure is a sensible starting point for your excess. From there, compare a few premium‑and‑excess combinations. If the premium saving from jumping to a higher excess is small, it may not be worth the extra risk. If it’s substantial and you have a healthy emergency fund, the higher excess might be a reasonable choice.
Remember that any indicative premium or excess quoted is just that—indicative. The final terms of your cover will be set out in the Product Disclosure Statement (PDS) of the insurer you choose, and the exact price can change once all your details are verified. InsurerHub provides general insurance education only; it is not an insurer or underwriter. You can visit Moneysmart on insurance and the Insurance Council of Australia to explore more about the industry. If you’d like to be connected with insurance providers who can give you specific quotes, you’re welcome to submit a general enquiry through InsurerHub—we typically get back to you within one business day, with no pressure or obligation.
Common questions
Q: Is the premium just based on the item I insure?
No. While the insured item’s characteristics are a major factor, your personal details and claims history also influence the final premium.
Q: Will raising my excess always cut my premium by a lot?
Not always. The premium reduction depends on how much risk the insurer is giving up. Sometimes a higher excess saves only a modest amount, so it’s worth comparing the numbers directly rather than assuming a big drop.
Q: Is there a maximum excess I can choose?
Insurers set their own limits. When you request quotes, you’ll see the available excess options and the corresponding premiums.
Q: Can I change my excess later?
You can usually adjust your excess when your policy renews, or by contacting your insurer. Changing it mid‑term may be possible, but any adjustment will be subject to the insurer’s conditions.
Q: Does a higher excess affect what’s covered?
No. The excess only changes how much you pay when you claim. The scope of cover—what events or losses are insured—is defined in the PDS and stays the same regardless of the excess you pick.