Wear and Tear Exclusion: A 2025 Guide for Australian Policyholders

When disaster strikes, Australians rely on their insurance policies to soften the blow. But a common clause—known as the ‘wear and tear exclusion’—can leave many out of pocket, even when they thought they were covered. With 2025 bringing updates to insurance regulations and a sharper focus on policy transparency, it’s never been more important to understand what this exclusion means for your home, car, or business insurance claims.

What Is the Wear and Tear Exclusion?

The wear and tear exclusion is a standard clause in most Australian insurance policies. It states that damage caused by ordinary usage, ageing, or gradual deterioration is not covered by your policy. Essentially, insurers expect you to maintain your property or vehicle, and they won’t foot the bill for issues that arise from neglect or the inevitable passage of time.

• Home insurance: Roof leaks from old tiles, faded paint, or worn carpets are typically excluded.
• Motor insurance: Engine failure due to old age or worn brake pads won’t be covered.
• Business insurance: Machinery breakdown from lack of maintenance may be denied.

This exclusion is designed to separate accidental damage from predictable, avoidable problems. For example, if your washing machine floods your laundry due to an unforeseeable burst pipe, you may be covered. But if the machine leaks due to years of ignored maintenance, expect your claim to be rejected.

2025 Updates: Regulatory Shifts and Industry Trends

Following pressure from consumer advocates and regulators, 2025 has seen a push for clearer communication of exclusions in insurance contracts. The Australian Securities and Investments Commission (ASIC) has cracked down on ambiguous policy wording, requiring insurers to highlight exclusions like wear and tear more prominently in Product Disclosure Statements (PDS).

• Enhanced disclosure: New PDS formats must clearly define what constitutes wear and tear, with real-world examples.
• Digital claims scrutiny: Insurers are leveraging AI and digital inspection tools to assess whether damage is due to gradual deterioration or a one-off event.
• Policyholder education: Insurers now offer more educational resources, helping customers understand how to maintain their assets and avoid claim denials.

These changes aim to reduce disputes and ensure Australians know exactly what is—and isn’t—covered before disaster strikes.

Real-World Examples: How the Exclusion Plays Out

Let’s break down some typical scenarios Australians have faced in the past year:

• Homeowner dilemma: After torrential rain in Queensland, Sarah files a claim for ceiling water damage. The insurer’s assessor finds the roof tiles were cracked and moss-covered, with no recent maintenance. The claim is denied due to wear and tear.
• Small business setback: A Melbourne café’s fridge fails, spoiling thousands in stock. Investigation reveals the motor was clogged with dust and overdue for servicing. The business interruption claim is rejected for lack of upkeep, citing wear and tear.
• Car owner’s surprise: Tom’s 10-year-old ute breaks down on the Hume Highway. The mechanic’s report blames worn-out timing belts. Tom’s insurer points to the exclusion: parts failing from age or usage aren’t covered.

In each case, the outcome hinged on whether the damage was sudden and accidental, or the result of ongoing neglect or age. Insurers typically request maintenance records, receipts, and sometimes even photos to verify the cause of damage.

How to Protect Yourself from Claim Denials

While wear and tear exclusions are here to stay, there are proactive steps you can take to minimise your risk:

• Stay on top of maintenance: Schedule regular checks for your roof, gutters, appliances, vehicles, and business equipment.
• Document everything: Keep receipts, photos, and service records to prove you’ve done your part.
• Read your policy closely: In 2025, expect clearer wording—take advantage of it and note exactly what’s excluded.
• Ask questions at renewal: Insurers are obliged to clarify exclusions; don’t hesitate to get specifics on wear and tear definitions.
• Consider optional cover: Some policies offer ‘extended warranty’ or ‘mechanical breakdown’ add-ons that can bridge the gap.

Remember, a little preventive action goes a long way—both in protecting your property and ensuring your insurer is on your side when you need them most.