How Does Choosing a Higher Excess Lower Your Premium?
In a Nutshell: Choosing a higher voluntary excess is the single most powerful tool you have to reduce your car insurance premium. Raising your excess from $500 to $1,500 can cut your premium by 18–30%. The trade-off: you pay more out of pocket if you claim. It's a bet that you won't have an accident.
The Maths: Higher Excess = Lower Premium
| Excess Amount | Annual Premium (Car Value $25,000) | Saving vs $500 Excess |
|---|---|---|
| $500 | $1,000 (baseline) | — |
| $800 | $900 | Save $100 (10%) |
| $1,000 | $850 | Save $150 (15%) |
| $1,200 | $800 | Save $200 (20%) |
| $1,500 | $760 | Save $240 (24%) |
| $2,000 | $700 | Save $300 (30%) |
💡 The trade-off: You save $240/year with a $1,500 excess. But if you claim, you pay $1,000 more than the $500 excess option. So it takes 4 years of claim-free driving to break even.
The Break-Even Calculation
| Scenario | Excess $500 | Excess $1,500 |
|---|---|---|
| Annual premium | $1,000 | $760 |
| Annual saving | – | $240 |
| Excess if you claim | $500 | $1,500 |
| Extra you pay if you claim | – | $1,000 |
| Years claim-free to break even | – | 4.2 years ($1,000 ÷ $240) |
💡 Interpretation: If you go 5+ years without an at-fault claim, the $1,500 excess saves you money overall. If you have an accident every 2–3 years, the $500 excess is better.
Who Benefits Most from a Higher Excess?
| Driver Profile | Recommendation | Why |
|---|---|---|
| Safe driver (5+ years claim-free) | ✅ Higher excess ($1,000+) | You're unlikely to claim — maximise savings |
| Young driver | ⚠️ Moderate ($500–$800) | Higher claim probability — don't over-extend |
| Low-risk senior (60+) | ✅ Higher excess ($1,000–$1,500) | Clean record, lower annual mileage |
| High-risk driver | ❌ Keep excess lower ($500–$800) | More likely to claim — minimise out-of-pocket |
| Car with loan/finance | ⚠️ Check with lender — max may be capped | Some lenders cap excess at $1,000 |
Factors to Consider Before Increasing Excess
| Consideration | Questions to Ask Yourself |
|---|---|
| Can you afford the excess? | Do you have $1,500+ in savings for an emergency? |
| How is your driving record? | When was your last at-fault claim? |
| How old is your car? | Older cars are more likely to be written off (total loss) |
| How much do you drive? | More driving = higher accident probability |
| Do you use your car for work? | Business use increases accident risk |
The "Self-Insurance" Philosophy
Some financial experts argue that car insurance is for major losses, not minor ones:
| Approach | Philosophy | Recommended Excess |
|---|---|---|
| Traditional | Insure for everything — low excess | $200–$500 |
| Self-insurance | Insure for catastrophes — pay for minor damage yourself | $1,000–$2,500 |
💡 Self-insurance logic: The $240/year you save with a higher excess goes into your "emergency car fund." After 5 years, you've saved $1,200 — enough to cover the higher excess if you do claim.
How to Implement a Higher Excess
| Step | Action |
|---|---|
| 1 | Check your current excess (compulsory + voluntary) |
| 2 | Choose a new voluntary excess amount |
| 3 | Get a quote from your insurer showing the new premium |
| 4 | Compare with 2–3 other insurers at the same excess level |
| 5 | If it makes financial sense — switch |
| 6 | Set aside the "savings" in an emergency fund |
Key Takeaway
- Increasing your excess from $500 to $1,500 can reduce your premium by 18–30%.
- The break-even point: if you go 4+ years without a claim, a higher excess saves money.
- Best for: safe drivers with clean records and savings to cover the excess.
- Not recommended for: high-risk drivers or those without an emergency fund.
- The savings compound each year — $240/year saved over 10 years = $2,400.
- Combine a higher excess with good driving = significant long-term savings.
- Always check with your lender if your car is financed — some cap excess amounts.
Last updated: July 2026
Disclaimer: This article provides general information about how increasing your voluntary excess affects car insurance premiums in Australia. Excess savings and break-even points vary by insurer and individual circumstances.