An insurance excess is the amount your business contributes toward an accepted claim before the insurer pays the balance. If your covered loss is 10 000 dollars and the applicable excess is 1 000 dollars, the insurer would in most cases pay about 9 000 dollars once the claim is accepted and subject to the policy wording, limits and any other deductions. The excess is clearly set out in your policy schedule and Product Disclosure Statement. Understanding exactly how it applies lets you forecast the real cash you will part with after an incident, [compare quotes]( /get-quote) with confidence and decide whether to lodge a claim at all.
What an insurance excess means for your business
In Australian general insurance the excess is your contractual contribution to every covered claim. The principle sits in the Insurance Contracts Act 1984, which requires that the amount and operation of the excess be disclosed to the policyholder in plain terms. Insurers use an excess to discourage small, frequent claims and to keep premiums stable. By sharing a slice of the risk, you signal to the insurer that you have skin in the game.
The excess does not replace the premium. The premium buys the promise of cover, while the excess is only paid when you claim. For most business policies the excess is fixed, such as 500 dollars or 5 000 dollars, but some policies impose a percentage or apply additional excesses for special risks like flood or high-value machinery. In every case you can find the amount on the certificate of insurance and the schedule.
How an excess works on a claim
The maths behind an excess is simple on paper yet often confusing when a real event occurs. The base formula looks like this.
Potential insurer payment Equals covered claim amount minus applicable excess
A claim professional then layers other factors on top. The accepted loss may be reduced by limits, sublimits, depreciation or underinsurance. Taxes such as GST can also change the net figure, especially for businesses with differing input-tax-credit entitlements. If more than one excess applies the schedule or policy wording will explain whether they are cumulative or alternative.
During settlement the excess is either
Paid directly to the repairer or third party when the work is finished Deducted from the cash payout if the insurer settles in money rather than repairs Invoiced by the insurer before the claim is finalised
The method depends on the policy and the insurer’s claims department preferences. Always seek written confirmation of how your excess will be handled before you authorise repairs or replacements.
Types of excess and when each appears
The language in Australian policies varies, yet the main categories stay fairly constant across the market. The table below compares them.
| Excess type | How it usually works | Example in business cover |
|---|---|---|
| Standard or basic excess | Fixed dollar amount that applies to most claims under the section | 1 000 dollars on a property damage claim |
| Voluntary excess | Chosen by the insured in return for a lower premium | A café selects a 2 500 dollar voluntary excess instead of the default 500 dollars |
| Compulsory excess | Imposed by the insurer due to risk factors such as previous claims or location | 10 000 dollars mandatory cyclone excess for premises in Far North Queensland |
| Percentage excess | Expressed as a percentage of the loss or sum insured, sometimes capped | Five per cent of building value for earthquake damage |
| Additional or special excess | Added on top of the standard excess for defined circumstances | 1 000 dollars additional inexperienced-driver excess on a company ute |
| Event or catastrophe excess | Separate excess that only triggers after certain named events | Flood excess of 20 000 dollars separate from the basic property excess |
| Time excess | Waiting period measured in hours or days rather than dollars | Business interruption cover has a 48-hour waiting period before losses are counted |
Your schedule can mix several of these. For instance a commercial motor policy may show a 750 dollar basic excess plus a 1 000 dollar driver excess and a 5 per cent of claim value excess for windscreen replacement if free glass cover was declined.
Business claim examples with real maths
Example one Shopfront glass damage
A retailer suffers vandalism overnight that shatters the front window. The glazier quotes 4 000 dollars to replace the glass.
The basic property section excess on the policy is 500 dollars. Glass is included in the cover and there is no separate glass excess.
Covered loss 4 000 Excess 500 Potential insurer payment 3 500
The claim is well above the excess so the retailer proceeds, pays the 500 dollars to the glazing firm after approval and the insurer settles the rest.
Example two Stock damaged by water
A burst pipe in the building above leaks into a fashion boutique. Inventory loss is assessed at 12 000 dollars.
Property excess 1 000 Stock sublimit is 100 000 dollars so no sublimit problem arises.
Covered loss 12 000 Excess 1 000 Potential insurer payment 11 000
The business supplies invoices to prove cost price, and the insurer pays the claim less the excess.
Example three Commercial vehicle accident with double excess
A company ute worth 35 000 dollars collides with a pole. Repairs cost 8 000 dollars. The driver is a new employee aged 19.
Standard motor excess 750 Inexperienced-driver excess 1 000
Combined excess 1 750 Covered repair bill 8 000 Potential insurer payment 6 250
Because the wording states the additional excess is cumulative, both apply. The business pays 1 750 dollars to the repairer once the insurer authorises the job.
Example four Public liability slip event
A customer slips on a wet floor in a café and fractures a wrist. The claim settles at 30 000 dollars including legal costs.
Liability section excess 2 500 Covered settlement 30 000 Potential insurer payment 27 500
Most liability policies treat defence costs as part of the claim for excess purposes, meaning the insured must contribute the excess towards both indemnity and legal expenses.
Example five Small loss below the excess
A workshop door is dented by a delivery trolley. Repairs cost 400 dollars but the property excess is 1 000 dollars.
Covered loss 400 Excess 1 000 Potential insurer payment 0
No payout is made. Even so, many policies require notification of any circumstance that could give rise to a claim, so the business phones the insurer, records the advice and funds the repair itself.
Example six Business interruption waiting period
A fire next door triggers a power outage. The café closes for two days and loses 5 000 dollars in revenue. The business interruption section has a 48 hour waiting period.
Loss within waiting period 5 000 Time excess 48 hours Potential insurer payment 0
If the outage had lasted four days the loss beyond the first 48 hours would have been considered, subject to turnover calculations and policy limits.
Multiple excesses on one event
Some claims activate more than one excess. Policies outline whether additional excesses stack or whether the highest single excess applies. Property policies often choose the higher of a flood excess or a standard excess. Motor policies frequently add young driver excesses to the basic excess. If several sections are triggered by the same occurrence, such as property damage and business interruption, each section can carry its own excess. Always read the policy wording rather than guess.
Choosing a higher or lower excess and the premium impact
Lower excess levels shift more risk to the insurer, so the underwriter usually loads the premium. Higher voluntary excess levels do the opposite. Savings can be significant for well run businesses with few historical claims.
| Feature | Lower excess option | Higher excess option |
|---|---|---|
| Premium impact | Higher premium in most cases | Lower premium in most cases |
| Cash required at claim time | Smaller, easier to fund | Larger, must keep cash reserve |
| Suitability | Start-ups with tight cash flow or high claim frequency | Mature firms with strong risk controls that rarely claim |
| Claim behaviour | Encourages small claims | Discourages claims near the excess level |
It is a myth that a higher excess always slashes the premium. Insurers model many variables, so the difference may be minimal for a low-risk operation. [Ask your broker to provide premium comparisons]( /insurance-solutions) across at least two excess levels so you can weigh the saving against potential out-of-pocket pain.
Deciding whether to claim or self fund
Before ringing the insurer, weigh the numbers and the strategic effect on future premiums.
Estimate the gross loss and compare it with the combined excess that would apply. Confirm the event is covered. Exclusions such as wear and tear or rust will halt a claim early. Consider whether the insurer expects notification regardless of payout. Liability incidents almost always require prompt notice because third-party costs can balloon later. [Ask how a claim might influence your no-claim discount]( /claims-support) or risk rating at renewal. Check whether the repair can be safely handled in house or whether legal obligations force you to claim.
A rule of thumb is that a loss should be at least double the excess before claiming feels worthwhile, but every policy and cash situation differs.
Finding the excess in your policy documents
The most reliable place to locate your excess is the policy schedule that arrives with the certificate of insurance or renewal offer. The schedule lists each section with its excess next to the sum insured or limit. The broader Product Disclosure Statement then explains special excesses, percentage triggers and waiting periods. If the documents appear inconsistent, [contact the insurer in writing]( /contact) and keep the answer on file.
Key takeaways
The excess is the business share of any accepted claim. It can be a fixed dollar amount, a percentage, a waiting period or a mix. More than one excess can apply to a single loss. The insurer deducts or collects the excess before final settlement. Choosing a higher excess can reduce premiums but raises the self-funding burden. Reading the policy wording and schedule before a crisis hits is the simplest way to avoid surprises.
FAQs
What is the definition of an insurance excess
It is the portion of a covered claim that the insured business must pay before the insurer contributes, as detailed in the policy schedule.
Does every claim involve an excess
No. Some sections, such as personal accident benefits, can be excess free. Others may waive the excess for total loss or when the responsible third party is identified.
When do I pay the excess
You either pay it to the repairer, to the insurer or it is deducted from the payout, depending on the claim arrangement confirmed by the assessor.
Can I negotiate the excess after a loss
Not usually. The excess is a preagreed term. You may renegotiate it only at renewal or mid-term with insurer consent.
Why do some excesses use percentages
Percentage excesses are common when loss values can vary wildly, such as catastrophe risks. They keep the business contribution proportional to the exposure.
Will a claim below the excess affect my premium
If no payment is made the event might still appear on your claims history if you notified the insurer, and some underwriters count such notifications when pricing renewal.
How does GST affect the excess
If your business is registered for GST and entitled to full input tax credits, the excess is usually stated inclusive of GST. Partial entitlements can change the net cost. Speak to your accountant for firm numbers.
Can two excesses cancel each other out
Policies state whether excesses are cumulative or whether the highest single excess applies. They do not cancel each other out unless the wording says so.
Is an excess the same as underinsurance
No. Underinsurance is a separate penalty that reduces the claim payment when the declared value is too low. The excess is your fixed contribution.
Who decides if an excess can be waived
Only the insurer can waive an excess, and usually only under circumstances listed in the policy such as total loss or recovery from a third party.
Disclaimer
This article provides general information about insurance excesses under Australian law. It is not personal financial advice and does not consider your objectives, financial situation or needs. Always read the relevant Product Disclosure Statement and consult a licensed broker or legal adviser before acting on this information.
_Last reviewed in February 2026 by an Australian qualified insurance professional._
