What is a deductible in insurance?

An excess in Australian insurance, sometimes called a deductible (the term used in the United States and in some specialised Australian policies), is the amount the policyholder pays first when making a claim, with the insurer paying the rest up to the policy's sum insured. The excess is one of the main ways insurers and policyholders share the cost of a claim.

Excess amounts vary by policy type and are usually chosen by the policyholder when taking out the policy. Higher excesses lower the premium, while lower excesses raise the premium. A typical home insurance excess ranges from 250 to 1,000 dollars, a comprehensive car insurance excess from 500 to 2,000 dollars, a private hospital insurance excess from 250 to 750 dollars per admission, and a contents insurance excess from 100 to 500 dollars.

Several types of excess can apply within a single policy. The basic excess applies to every claim. Additional excesses may apply in specific circumstances: a young driver excess for car insurance when the driver is under 25 (typically an extra 500 to 1,000 dollars), an unlisted driver excess when the driver is not named on the policy, a natural disaster excess for floods, earthquakes, or cyclones in some catastrophes, and a per-event excess for weather damage. The Product Disclosure Statement lists all excesses that apply.

Some claim circumstances result in the excess being waived. Most car insurers waive the excess on a claim where another driver is fully at fault and is identified. Most home insurers waive the excess for some specific small claims like glass-only claims. Some specialty policies for investment properties waive the excess on tenant-related damage. After a claim is paid, the excess is generally not refundable, even if the insurer later recovers costs from a third party (although in practice insurers often refund excesses in successful recovery cases). Choosing a higher excess can be a sensible way to lower premiums for households with adequate savings to cover the excess if a claim occurs.