Introduction
When you buy business insurance, the premium tends to dominate your attention. It is the number you pay upfront, the line item in your budget, and the easiest figure to compare between quotes. But tucked inside every policy is another number that can have just as much impact on your finances: your excess.
Your excess is the amount you agree to pay out of your own pocket when you make a claim. It is not a fee or a trick — it is a core part of the insurance contract that directly shapes what your insurer charges you and how much financial exposure you carry into every claim.
The relationship between excess and premium is one of the most practical levers a small business owner can pull. Raise your excess and your premium comes down. Lower your excess and your premium rises. The mechanics are simple, but choosing the right level for your business takes some thought.
This article walks through how excess works, the different types you will encounter in Australian business policies, how it changes your premium in real terms, and a framework for choosing an excess that fits your circumstances. The information is general in nature. Always read the Product Disclosure Statement (PDS) before buying any insurance product.
What Is an Insurance Excess?
An insurance excess — sometimes called a deductible — is the dollar amount you contribute toward a claim before your insurer pays the rest. It applies to most types of business insurance you will encounter: public liability, professional indemnity, business property, and management liability.
Here is how it works. Suppose your business property policy has a $500 excess and a burst pipe causes $8,000 in damage. You lodge a claim. The insurer assesses the damage and agrees the loss is covered. They pay $7,500. You cover the first $500. If the same burst caused only $400 in damage, you would likely not claim at all — the repair bill falls below your excess, the insurer would pay nothing, and you would still have a claim on your record.
This threshold function is deliberate. Insurers use excesses to filter out small claims that cost more to administer than they pay out. By setting an excess, the insurer transfers minor losses back to you and reserves their resources for the larger claims insurance is meant to handle.
The excess is not a penalty. It is a risk-sharing mechanism. You take the first portion of any loss, and the insurer covers the rest — up to the policy limit.
Critically, your excess is not fixed in stone. Most Australian business insurers let you choose from a range of excess options, and that choice has a direct and predictable effect on your premium.
The Different Types of Excess
A typical Australian business insurance policy can carry several different types of excess, each applying in different circumstances. Knowing which ones your policy includes stops you from being caught off guard when a claim lands.
Standard (Basic) Excess
The standard excess is the default amount that applies to most claims. It is the figure you see on your certificate of insurance and the one you can usually adjust up or down in exchange for a premium change. For small business public liability, a standard excess might sit around $500. For professional indemnity, it might be $2,000 to $5,000.
Additional or Imposed Excess
An imposed excess is an extra amount the insurer adds because of a specific risk factor — your industry, your claims history, your location, or your trading age. You do not choose it; the insurer imposes it based on their underwriting assessment.
Common triggers include operating in a high-risk trade like roofing or demolition, a history of frequent claims, working at heights or in remote areas, or being a young business with limited trading history. For example, an electrician with two liability claims in three years might get a $500 standard excess plus a $1,000 imposed excess, meaning $1,500 out of pocket per claim.
An imposed excess is a signal. If your insurer applies one, it means they see something in your risk profile worth pricing in. Ask what triggered it and whether it can be reviewed at renewal.
Voluntary Excess
A voluntary excess is one you choose to add on top of the standard excess in return for a lower premium. If your policy has a $500 standard excess and you elect a $1,000 voluntary excess, your total excess becomes $1,500 — and your premium drops. This is the part of the equation you directly control.
When Excesses Stack
Standard, imposed, and voluntary excesses can all apply to the same claim, stacking on top of one another. A $500 standard excess plus a $1,000 imposed excess plus a $500 voluntary excess means a $2,000 payment on your next claim. Read your certificate of insurance carefully so you know your true total.
How Excess Affects Your Premium
The relationship is inverse: higher excess means lower premium, and vice versa. This happens because you are agreeing to cover a larger share of any loss yourself, which reduces the insurer’s expected payout and therefore the premium they need to charge.
The premium reduction from increasing your excess varies by insurer, policy type, and your risk profile. As a general guide observed across Australian business insurance, doubling a $500 excess to $1,000 might reduce your premium by 10 to 20 percent. Moving from $1,000 to $2,500 might save a further 10 to 15 percent, though the biggest proportional savings usually come from the first increase — diminishing returns set in after that. Actual savings vary by provider.
Consider a marketing consultancy quoted for professional indemnity insurance. With a $1,000 excess the annual premium is $2,400. At $2,500 it drops to $2,040. At $5,000 it falls to $1,800 — a $600 annual saving. Over five claim-free years, that is $3,000 in savings, which more than covers the extra $4,000 out-of-pocket exposure on a single claim. If no claims occur, the business is well ahead.
Now consider a café with a property policy covering equipment and fit-out. Moving from a $250 excess to $1,000 saves $540 per year. But a café faces frequent small risks — broken equipment, water damage, smashed windows. If the café claims even once every two years, the lower excess option may work out cheaper when you account for reduced out-of-pocket costs per claim.
The maths always comes down to two questions: how much premium are you really saving, and how likely are you to claim? Saving $200 a year while exposing yourself to an extra $2,000 in out-of-pocket costs means you need ten claim-free years to break even. That might be a reasonable bet for some businesses and a bad one for others.
The Psychology of Excess Selection
Most business owners spend far more energy comparing premiums than choosing an excess. Faced with excess options, the typical response is to accept the default. This is understandable — the premium is real money leaving your account today, while the excess is a hypothetical cost you might never pay.
Behavioural economists call this present bias: the tendency to weight immediate costs more heavily than future ones. A $500 premium saving is tangible. A $2,000 excess increase is abstract and uncertain. Your brain gravitates toward the lower premium even if the higher excess is the better long-term decision.
There is also optimism bias at work. You probably think your risk controls are above average and that bad luck happens to other businesses, not yours. This pushes you toward a higher excess because you discount the probability of ever paying it.
Neither bias makes you irrational — they are normal responses to uncertainty. But being aware of them helps you make a deliberate choice rather than drifting into a default that might not suit your business.
If you catch yourself thinking “I probably won’t claim, so I might as well save on the premium,” pause and ask: could you comfortably write a cheque for the excess amount tomorrow if something went wrong? If the answer is no, the premium saving is not worth the risk.
When a Higher Excess Makes Sense
Choosing a higher excess is a calculated bet that the premium savings outweigh the extra out-of-pocket cost if you claim. This bet pays off most reliably in certain circumstances.
You have strong cash reserves. If your business holds enough working capital to cover a larger excess without disrupting operations, you can afford to self-insure the first portion of any loss. As a practical test, could you pay the highest excess option tomorrow without touching personal savings or delaying supplier payments? If yes, the higher excess is a live option.
You operate in a low-risk industry. A bookkeeping practice in a serviced office faces far fewer claim triggers than a builder or restaurateur. If your day-to-day operations carry low inherent risk and your claims history is clean, the probability of actually paying that higher excess is small — and the premium savings are likely to stay in your pocket.
You have a clean claims history. An established business with years of claims-free history has real data supporting the view that claims are infrequent. Past performance is not a guarantee, but a long clean record is a reasonable basis for accepting a higher excess.
Your policy covers catastrophic losses. Some insurance exists to protect against losses that would genuinely threaten your business — a liability claim in the hundreds of thousands, a fire that destroys your premises. For these policies, the excess is a small fraction of the risk you are insuring against. If a $50,000 claim would be devastating and your excess is $2,500, the excess is not the part you should be worrying about. Taking a higher excess to reduce premium on catastrophic cover is often rational.
When a Lower Excess Is Better
A lower excess means you pay more in premium but less when you claim. This is the right call when claim probability is higher or cash flow cannot absorb a large out-of-pocket hit.
Your cash flow is tight. If your business runs on thin margins or operates near its overdraft limit, a large excess can turn a claim from a solution into a problem. You lodge a claim expecting relief and instead face a multi-thousand-dollar payment before the insurer steps in. A lower excess keeps the insurance product usable when you need it.
You work in a high-risk industry. Trades, construction, hospitality, and transport businesses face elevated claim frequency compared to office-based services. If your work involves physical hazards, client property, or heavy machinery, the probability of a claim over a three-to-five-year period is real. A lower excess means each claim costs you less, which can outweigh the premium saving.
You are likely to make frequent small claims. A retail shop might claim for shoplifting or accidental stock damage. A café might claim for equipment breakdown. A tradesperson might have occasional minor property damage. If your business fits this pattern, a low excess keeps each claim affordable and avoids the frustration of paying a $2,000 excess on a $2,500 claim.
You value certainty over optimisation. Not every business decision needs to be financially optimised. Some owners prefer knowing their out-of-pocket cost is capped at a modest amount. If a higher excess would cause stress every time you think about it, the premium saving is not worth the mental overhead. Insurance is meant to reduce worry, not create it.
Aggregate Excess vs Per-Claim Excess
One of the less obvious details in a policy is whether the excess applies per claim or as an aggregate across the policy period.
Per-claim excess is the standard structure in most Australian business policies. Each separate claim attracts its own excess. Three claims in a year at $1,000 per claim means $3,000 in total excess. This is straightforward but can add up if your business is prone to multiple smaller claims.
Aggregate excess caps the total excess you pay across all claims in a policy period. If your policy has a $5,000 aggregate excess and you make five claims each with a $1,500 excess, you stop paying once your total contributions hit $5,000. From that point, the insurer covers claims in full. Aggregate excesses are less common in small business policies but appear in some professional indemnity and management liability products.
Some policies use hybrid structures — a per-claim excess for most losses but an aggregate limit for claims arising from a single event. Read your PDS to understand what actually applies.
If your policy offers both options and the premium difference is modest, an aggregate excess generally provides better protection for businesses that could face multiple claims in a single period.
How Excess Varies by Policy Type
Excess structures differ significantly between policy types. What is normal for public liability may look completely different for professional indemnity.
Public liability excesses for small businesses typically range from $250 to $1,000, though high-risk trades may see $1,500 or more. Because liability claims often involve modest property damage, the excess can represent a large slice of a small claim — a $1,000 excess on a $1,500 claim leaves the insurer paying only $500. Many owners keep their liability excess low for this reason.
Business property excesses tend to range from $250 to $1,000. Some property policies apply different excesses for different causes of loss: a $500 standard excess, a $1,000 excess for theft, a $2,500 excess for flood. If you operate in an area exposed to natural perils, check the sub-excesses carefully — they can be substantially higher than the headline figure.
Professional indemnity excesses are typically larger, often $1,000 to $5,000 for small businesses, and some professions may see $10,000 or more. PI claims are expensive to investigate and defend, and the excess reflects that higher quantum. Some PI policies also apply an excess on defence costs, meaning you pay even if the claim against you is ultimately dismissed. Check your wording.
Management liability excesses for small businesses often range from $2,500 to $10,000. Employment practices claims like unfair dismissal may carry their own specific excess separate from the excess for director-related claims. Some policies include nil excess for legal representation at official investigations — a feature worth looking for.
Cyber insurance excesses for small businesses typically range from $1,000 to $5,000, though many policies apply different excesses for different types of loss — lower for data restoration, higher for extortion payments or business interruption.
A Practical Decision Framework
Choosing your excess should be an active decision at each renewal, not a set-and-forget setting. Here is a step-by-step approach.
Step one: know your numbers. Determine how much working capital you could redirect to an excess payment without operational stress. That figure is your practical ceiling. Also review your claims history over the past three to five years. Small frequent claims suggest a lower excess. A clean history or rare large claims suggest a higher one.
Step two: get quotes at multiple excess levels. When you obtain quotes, select at least two different excess levels — the standard, one higher, and one lower. This gives you real data on the premium trade-off rather than relying on general estimates.
Step three: calculate the payback period. For each step up, work out how many claim-free years it takes for the premium saving to exceed the extra out-of-pocket exposure. If moving from $500 to $1,500 saves $200 per year, the payback is $1,000 divided by $200, or five years. If you genuinely think a claim within five years is unlikely, the higher excess is probably worth it.
Step four: stress test your decision. Imagine lodging a claim six months after taking out the policy and paying your chosen excess. Does the number make you flinch? If it feels manageable, your excess is about right. If it feels like a serious problem, it is too high.
Step five: revisit at renewal. A business that builds cash reserves over profitable years can afford a higher excess than it could at startup. A business entering a tight period might benefit from lowering its excess. Treat excess as an active decision every year.
Common Mistakes When Choosing an Excess
Picking the cheapest premium without checking the excess. Some quotes look attractive because they carry a high excess buried in the fine print. Always compare excess levels alongside premiums — a cheap quote with a $5,000 excess is not directly comparable to a slightly more expensive quote with a $500 excess.
Choosing an excess you cannot actually afford. This is the most damaging mistake. If you select a $2,500 excess to save $300 but do not have $2,500 when a claim occurs, you have bought insurance you cannot use. The policy is in place but you cannot afford to trigger it.
Ignoring imposed excesses. Factor imposed excesses into your voluntary excess decision. A $500 voluntary excess on top of a $500 standard excess and a $1,000 imposed excess leaves you at $2,000 total — far higher than you might have intended.
Assuming all claims attract the same excess. Many policies apply different excesses for different claim types. Theft might have a higher excess than accidental damage. Flood might carry multiples of the standard excess. Read the schedule and PDS to know what you will actually pay in the scenarios most relevant to your business.
Forgetting the excess applies per claim. Unless your policy specifies an aggregate excess, each separate claim costs you the full amount. Two unrelated claims in a year mean you pay twice.
Getting Quotes and Comparing Options
The most practical way to evaluate excess options is to see real numbers for your specific business. Most Australian insurers let you adjust the excess when obtaining a quote, and the premium difference appears immediately. Online comparison platforms let you view quotes from multiple insurers side by side and some allow simultaneous excess adjustments — this is the most efficient way to find the right balance.
If you want to see how different excess levels affect your premium in real time, you can get quotes and compare options at BizCover{target=“_blank” rel=“noopener”}.
When reviewing quotes, look beyond the headline premium. Check the excess structure for each option, note any imposed or additional excesses, and confirm whether the excess is per-claim or aggregate. These details matter as much as the premium itself.
FAQ
What is the difference between an excess and a premium?
Your premium is the amount you pay to keep your policy active — typically an annual sum. Your excess is what you contribute toward a claim when you make one. You pay the premium regardless. You only pay the excess if you lodge a successful claim.
Can I change my excess after my policy has started?
Most insurers let you adjust your voluntary excess mid-term, with the premium adjustment calculated pro-rata for the remaining period. You cannot remove an imposed excess mid-term — that is set at inception or renewal. Contact your insurer or broker to discuss options.
Does my excess apply if a claim is made against me but I am not at fault?
It depends on the policy. In public liability, if you dispute a claim and the insurer determines you are not liable, some policies refund or waive the excess. In professional indemnity, you may still pay an excess on defence costs even if a claim is dismissed. Check your PDS.
What happens if I cannot afford to pay my excess at claim time?
Your insurer will typically deduct the excess from the claim settlement rather than requiring upfront payment. If your claim settles for $20,000 and your excess is $2,000, you receive $18,000. For liability claims where the insurer pays a third party directly, you may need to pay the excess separately. If you genuinely cannot pay, speak to your insurer early — they may offer arrangements, though they are not obliged to.
Is a higher excess always better if I never make claims?
In purely financial terms, yes — if you never claim, a higher excess saves you premium every year with no downside. But over a decade running a small business, most owners encounter at least one claim-triggering event, even with a tight operation. The better question is: how often are you likely to claim, and can you afford the excess when you do?
Disclosure: This article provides general information only and does not take into account your individual circumstances, financial situation, or needs. You should read the Product Disclosure Statement (PDS) and consider seeking professional advice before making decisions about business insurance. Some links in this article may direct you to BizCover, an Australian insurance comparison service. comparebusinessinsurance.au may receive a commission for referrals. This does not influence our content, and our analysis remains independent.