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
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
||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
|Third party property
|Third party property, fire and
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?
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
- 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
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
Need help to factor in the ongoing costs associated with buying
MoneySmart Cars app
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
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
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
- Is my car likely to be broken into?
- How will I get around if my car is stolen or written off?
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
Richie 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
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
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
Car insurance savings tips
Tips for saving on car insurance premiums:
- Drive safely to give yourself the best chance of having a good
- Shop around and compare premiums for the same type of
- 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
- 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
- Move house
- Have additional drivers
- Use your car for work
Case 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
Making a claim on your car
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
Claims for some incidents may result in you paying multiple
excesses. Check your policy to see what your excess will be for
You should also check the wording of your policy to understand
the impact making a claim has on your no claims discount and
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.
Last updated: 06 Mar 2018