Home Insurance Excess Australia

What is home insurance excess?

Home insurance excess is the amount of money you agree to pay out of your own pocket when you make a claim. After your claim has been processed and approved, your insurer will then pay the remaining amount.

Excess doesn't just apply to home and contents insurance, you'll also find it across almost all other insurances, including car, travel and pet insurance. In the land of insurance, your excess is one of the things you have control over as a customer, which is why many Australians take the opportunity to cut the cost of their premium with a higher excess.

One simple way to think about home insurance excess is as a type of co-payment. For example, let's say you need to make a $6,000 claim on your home insurance policy and your excess is $1,000. You'd pay the $1,000 upfront and then your insurer will take care of the remaining $5,000.

Why does excess exist?

There are a number of reasons why insurance companies ask for an excess before they process claims, including:

• To prevent lots of small, frequent claims. Processing claims costs insurers money, so a flood of tiny claims would push premiums way up for everyone. The excess acts as a filter so only meaningful damage is claimed.
• To reduce fraudulent or exaggerated claims. When someone has to pay an excess, it makes them less likely to intentionally create damage, claim for things they don't need or inflate the cost of repairs. Think about it, it's harder to commit fraud when you're on the hook for part of the bill.
• To make insurance costs fairer. People who claim more shouldn't be punished completely by those who have never made a claim. By having an excess, the cost of a claim is shared, helping to balance the system so premiums are more fair across customers.
• To encourage responsible risk-management. If you know making a claim will cost you a pricey excess, you're more likely to repair small issues yourself and keep up with maintenance around your home.

Types of home insurance excess

• Standard or basic excess. This is the default excess that applies to most claims on your policy. It's set by the insurer and forms the base amount you'll need to pay if you make a claim.
• Event-specific excess. These apply only to claims caused by certain events, usually those with higher claim frequency or severity, such as floods, cyclones, or earthquakes. They typically reflect the increased risk associated with these events and may be higher than the basic excess.
• Risk-based excess. These are excesses applied due to particular risk factors related to the property or the people living in it. Some examples are excesses for young or inexperienced occupants, unoccupied homes or homes in high-risk locations (like flood-prone areas or older buildings with outdated infrastructure).

When more than one excess applies

Multiple excesses can apply when different layers of risk are involved in the same claim. For example, you'll always pay your standard excess, but if the damage was caused by a specific event (like a flood or earthquake) or happened under certain conditions (such as the home being unoccupied), those event-specific or risk-based excesses can be added on top by the insurer.

If you've chosen a voluntary excess to lower your premium, that amount is also included. Insurers stack these excesses because each one reflects a separate type of risk they're covering, helping keep premiums fair and manageable overall.

How your home insurance excess affects your premium

In addition to paying an excess for each claim, you will also need to pay a premium to maintain home insurance cover. Many insurers will give you the choice to pay this on a monthly or annual basis. In most cases, opting to pay your policy's premium annually is often the cheaper option, long-term.

Home insurers will give you a quote of your estimated premium before you take out a policy. They use many factors to determine this cost, including:

• The type of cover you're looking for
• Any add-ons or benefits you selected
• Discounts you are eligible for
• Whether you're opting to pay annually or monthly
• Your risk profile

Insurers will also use the amount of excess you selected to determine your quote, ultimately giving you the opportunity to reduce your premium.

When you choose to take on a higher excess, you're also agreeing to take on a large portion of risk. This is a green flag in the eyes of an insurer, as it reduces the amount they'll need to pay if you ever make a claim. In turn, they reward customers with a cheaper premium.

How often you actually claim matters: what you need to know

How often you claim has a big impact on what you pay for home insurance. If you make frequent or small claims, your insurer may see you as a higher risk and increase your premium or excess at renewal.

But if you rarely claim and handle minor repairs yourself, you're generally viewed as lower risk, which can help keep premiums more affordable. Insurers look at both your recent claims history and long-term patterns, so it's worth considering whether a claim is truly necessary before lodging it.

How to choose the right home insurance excess

When picking the right excess for your home insurance policy, it helps to think about how it fits with your finances and the type of claims you're most likely to make. Here are the key factors to weigh up:

• Your emergency savings and cash flow. Choose an excess you can comfortably afford at short notice. If you have solid savings, you may be able to opt for a higher excess to reduce your premium. If money is tight, a lower excess gives you more protection from sudden out-of-pocket costs.
• How often you realistically expect to claim. If you rarely make claims and maintain your property well, a higher voluntary excess may make sense because the overall cost of your policy will usually be lower.
• The size of the likely claims. Consider what you're most likely to claim for. Big building-related claims, like storm damage or burst pipes, can run into the thousands, so paying a slightly higher excess might not make much difference. Smaller, more frequent content claims may be harder to justify if your excess is set too high.
• Your risk tolerance and mortgage requirements. If you prefer predictability and peace of mind, go for a lower excess even if it means a higher premium. Also check whether your lender has minimum insurance requirements, as some mortgages require certain excess conditions as part of the loan agreement.

5 common mistakes people make with their home insurance excess

While selecting your home insurance excess seems easy enough, many homeowners forget to consider the overall picture. Here are 5 common home insurance excess mistakes and how to avoid them:

• Choosing the maximum excess for a small premium discount. Most of the time, insurers let you play around with excess amounts when shopping around on policies, allowing you to see how much your excess can influence your premium. Pay attention to these figures to ensure you're getting the best deal for you by selecting the maximum excess.
• Setting an excess higher than their emergency savings. Home insurance excess amounts can range between $500 to $1,500. If you opt for a $1,500 excess, remember, you will need to pay that amount if you make a claim. For many Australian households, cost of living increases have seen many emergency savings dwindle, which is why it's important to select an excess you can afford.
• Not realising multiple excesses can stack on one claim. As we said earlier, there could be more than one type of excess attached to your policy. And if you've selected the maximum basic excess, you could be coughing up more than you initially anticipated.
• Assuming you don't have to pay the excess when you are "not at fault". You may be able to get away with not paying an excess for your car insurance if you're not at fault, but this isn't always the case for home insurance. Unless there is another party involved in your claim, it's more than likely you'll be liable to pay the excess.
• Dropping small claims because they cannot afford the excess. This is a big one that could land you in hot water down the road. Finder research shows that a whopping 4.5 million Australians are avoiding insurance claims to save money — 9% specifically avoided home insurance claims. While you might save a few bucks short-term, a small issue could spiral into a major disaster.

Frequently asked questions

• What is a home insurance excess in Australia?

  A home insurance excess is the amount you pay when you make a claim. Your insurer covers the rest of the approved costs above that amount. Depending on your policy, you may have a standard excess plus additional voluntary, event-specific or compulsory excesses that apply in certain situations.

• Is it better to have a higher or lower home insurance excess?

  It depends on your budget and risk tolerance. A higher excess usually lowers your premium, which can be helpful if you want cheaper ongoing costs and rarely claim. But it also means paying more upfront if something goes wrong. A lower excess costs more in premiums but reduces your out-of-pocket cost during a claim.

  The best way to determine which excess suits your budget is to have a think about what you'd be comfortable paying if you ever had to make a claim.

• Do I pay my home insurance excess on every claim?

  Yes, you are generally expected to pay your home insurance excess on every claim you make. In some cases, you may be asked to pay more than one excess. Always check your product disclosure statement (PDS) to see which claims require an excess and whether any exemptions apply.

• Do I still pay an excess if I am not at fault?

  Regarding your home insurance, yes. Events or circumstances where there is no third party involved, such an earthquake or storm, you will be required to pay an excess.

• Can I change my home insurance excess after I buy a policy?

  Often you can, but it depends on your insurer's rules. Many insurers allow you to adjust your excess at renewal or sometimes mid-policy. Increasing your excess can reduce your premium, while lowering it usually increases your premium. Any changes may take effect immediately or at your next renewal, so it's important to check the timing and conditions before making adjustments.

• Can I have a different excess for building and contents?

  Yes. Many insurers let you choose separate excesses for building and contents, particularly if these are insured under the same policy. This lets you tailor your cover, such as having a higher excess for building to reduce premiums, while keeping a lower excess for contents you expect might be claimed more often. However, check your insurer's PDS, as not all policies allow different excess settings.

• What happens if I cannot afford to pay my excess?

  If you can't afford your excess, contact your insurer and inform them of your financial situation. In some cases, they may reduce or waive the excess entirely if you can provide evidence of your hardship. Other alternatives including opting for a payment plan or the insurer keeps the amount of your excess before issuing the remaining amount to you.

• Does a higher excess always mean a cheaper premium?

  Not always, but usually. Increasing your excess reduces the insurer's risk, which often leads to lower premiums. However, the discount varies and may only reduce your premium up to a certain point. That's why it's worth taking the time to compare home insurance quotes from at least 3 different insurers to find the most cost-effective option.

Written by

Ceyda Erem

Senior writer

Ceyda Erem is Finder’s senior writer for insurance and has almost 10 years of experience writing about personal finance. Formerly a copywriter for several business and finance clients, Ceyda has written hundreds of articles, guides, blogs and more to ensure Australians stay in the loop about how to best manage their money. She has a Bachelor of Arts, Majoring in Writing from Macquarie University. See full bio

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Ceyda has written 55 Finder guides across topics including:

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