Car insurance

Drive with confidence

Buying a car is exciting. Many people spend weeks test driving different models to find a vehicle that suits their budget, lifestyle and personality.

You should also think hard about car insurance. The type of cover you take out will affect the overall and ongoing cost of your vehicle. Always shop around for insurance before you go to the car yard.

In addition, there are a number of things young drivers need to consider.

Types of car insurance

The table below shows the coverage offered by different types of car insurance:

Type Damage to your car Damage to other people's property (e.g. other cars) Damage or loss caused by theft of your car Injuries or death to other people in an accident
Compulsory third party cross cross cross tick
Third party property cross tick cross cross
Third party property, fire and theft cross tick tick cross
Comprehensive tick tick tick cross

Compulsory third party insurance

Compulsory third party (CTP) insurance is the most important type of car insurance. Sometimes known as a 'green slip', it covers death and injury to people if you are involved in an accident. Each state and territory has different rules relating to this type of cover. Your state or territory traffic/transport authority has information on CTP car insurance.

Some people think their CTP insurance covers them for damage caused to someone else's property while driving their vehicle, but this is not the case. CTP insurance only covers the driver of a car for personal injury they cause to someone else - it does not cover the driver for damage to another's property.

Third party property insurance

Third party property insurance covers the repair costs of property damage your car causes. 

Some third party property policies include an 'uninsured motorist extension' that covers you if your car is damaged in an accident and you're not at fault.

Third party property damage cover may seem like an optional extra but if, while driving your car, you cause damage to another person's car or property and it is your fault that person can claim the cost of the damage from you. The average vehicle repair cost is around $3,000. Could you afford this if you had a crash?

Smart tip

Third party property damage insurance cover can protect you (and a person who has your permission to drive your car) from having to pay for damage caused to another's property.

There are three main types of insurance you can take out over your car which can provide third party property damage insurance cover:

  • Comprehensive car insurance - covers damage to your own car and other people's property if your car is in an accident (including fire) as well as theft.
  • Third party, fire and theft insurance - covers damage to other people's property, and provides limited cover for damage to your own car caused by theft or fire.
  • Third party property damage insurance - covers damage to other people's property (e.g. their car or home) and your own legal costs.

Car insurance for people on low incomes

If you are on a low income or your car is not worth much, it's still worth insuring if you don't have the money to replace it. Good Shepherd Microfinance has worked with insurance companies to create affordable and simple insurance policies for cars worth up to $5,000. These policies have flexible payments options and premiums can even be deducted from some Centrelink benefits. Find out more about the Good Insurance program on the Good Shepherd Microfinance website.

Add-on insurance

Some car dealers may offer you add-on insurance or insurance extras to add onto your car loan. Some of this insurance is not very good value and you may already have some of this cover. Find out more about the insurance extras sold by car dealers.

Need help to factor in the ongoing costs associated with buying a car?

MoneySmart Cars app

Usage-based insurance

Insurers who offer "usage-based insurance" track your driving habits using technology installed in your car. They will track things like your speed, distance travelled and how hard you brake and accelerate. They may also consider where your car is driven and where it is usually parked. Your premium is then calculated using this information.

Pay as you drive (PAYD) insurance

The premium for this type of cover is based on the number of kilometres you expect to drive in the coming year. If, during the year, you think you will drive further than planned, you can 'top up' your kilometres for an additional cost. However, if you exceed your elected kilometres and don't tell the insurer, your level of cover may be reduced.

Check different insurers' websites to see the range of car insurance options they offer.

What type of car insurance do I need?

By law you are required to have CTP insurance.

On top of CTP cover, decide what level of additional cover you need. Ask yourself:

  • If I crash into a luxury sports car will I be able to afford the repairs?
  • Is my car likely to be broken into?
  • How will I get around if my car is stolen or written off?

Who and what is covered by car insurance?

For most people, having (at least) third party property insurance is the way to go because it means you won't have to pay a hefty sum for someone else's damaged vehicle.

Case study: Richie's lack of car insurance gets him into debt

Young man with no car insuranceRichie decided not to get any extra insurance on top of his CTP because his car was very old. A few months later, he hit a brand new sports car, which needed $20,000 worth of repairs.

Because he was not insured for damage to other cars, Richie had to take out an expensive personal loan and work extra hours to pay off the debt over 5 years.

How to choose a car insurance policy

Insurance policies for cars are based on either 'agreed' or 'market' value. An agreed value policy has a set dollar value for your vehicle. Market value policies value your car based on the make, model and condition. The agreed value is usually higher than the market value.

When comparing the cost of different car insurance policies, weigh up the difference between having a high premium and low excess versus the opposite. You may be able to save on your premium by increasing your excess.

No claim bonus

No claim bonus schemes are meant to reward safe drivers or those who don't claim on their insurance but a no claim bonus does not always reduce the cost of your premium. Don't just stick with your current insurer for a no claim bonus, as you could get a better deal elsewhere. Find out more about what a no claim bonus really gives you.

Car insurance savings tips

Tips for saving on car insurance premiums:

  • Drive safely to give yourself the best chance of having a good driving record
  • Shop around and compare premiums for the same type of cover
  • Bundle your insurance with one insurer to get discounts
  • Add security devices to your car
  • Don't make unnecessary modifications to your car.

Car insurance exclusions

Make sure you understand the level of cover before signing up. Below are some typical car insurance exclusions to watch out for:

  • Damage from mechanical failure, modifications, depreciation, rust and wear and tear
  • Lost wages if you can't drive
  • Damage caused because your car was unsafe or in a race
  • Intentional damage
  • Damage caused if the driver was unlicensed, drunk or under the influence of drugs
  • The driver wasn't covered by the policy.

Why you need to be honest with your car insurer

Always 'tell it like it is' because making a mistake in the information you give your insurer, whether it's deliberate or not, can affect the premium you pay. Provide truthful information at all times. If you don't, the insurer might refuse to pay when you try to make a claim.

Also inform your insurer if your circumstances change. For example, if you:

  • Modify your car (e.g. rims, tinted windows, woofers and kits)
  • Move house
  • Have additional drivers
  • Use your car for work

Young man who voided car insurance by changing his cars appearanceCase study: Jimmy's car insurance claim is rejected

Jimmy bought a new car and took out comprehensive insurance. He decided to add a spoiler and lower the car a few inches to give it a more distinctive look. But when the car was damaged, his claim was rejected because he had not informed his insurer of the changes.

Making a claim on your car insurance

If you have an accident, contact your insurer straight away. Depending on how serious the accident is, you may need to fill out a police report. Get details from any other parties involved. When you're making the actual claim, put in as much detail as possible.

Claims for some incidents may result in you paying multiple excesses. Check your policy to see what your excess will be for likely incidents.

You should also check the wording of your policy to understand the impact making a claim has on your no claims discount and premium.

Motor vehicle accident problem solver

The Financial Rights Legal Centre's Motor vehicle accident problem solver is a tool that helps you to navigate your car insurance if you have an accident.

Selecting the right insurance for your car, motorbike, truck or van is very important and could save you lots of money if something goes wrong. At the very least you should always consider getting third party property cover so you don't end up with a big debt if you're in an accident.

Related links

Last updated: 06 Mar 2018