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Car insurance basics

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In Australia, all registered cars must have Compulsory Third Party (CTP) insurance. But do you need more cover than that?

Here’s a look at why having additional insurance on top of your CTP is not just a good idea, but also essential for your peace of mind.

What is car insurance?

Car insurance is an agreement between you (the driver) and an insurer, in which you pay them a premium in exchange for them covering you in case something goes wrong. What is covered depends on the type of policy you choose.

What types can I get?

These are the common types of car insurance policies:

Comprehensive car insurance

This is the only type of insurances that covers your car, as well as other people's cars and property.

With comprehensive insurance, you'll have complete protection for your car. You'll also be covered should you cause an accident, which should help you avoid any big repair bills. Comprehensive will even cover you for storms.

Third party fire and theft (TPFT)

This protects you if your car causes damage to someone else's property, or if your car is stolen or damaged by fire.

Third party fire and theft car insurance is designed to cover you when your vehicle is stolen or damaged by fire, or if you’re responsible for an accident that damages someone else’s vehicle or property. This mid-level car insurance option provides cover against the most common risks you face when on or off the road, and is designed to be more affordable than comprehensive car insurance.

Third party property damage (TPPD)

TPPD provides coverage for any damage you cause to someone else's vehicle or property. It won't cover your own car.

TPPD car insurance covers damage you cause to someone else's vehicle or property. If you crash into someone's new car, you won't be paying the repair costs - your insurance will. This kind of policy won't cover your car but could stop you from facing big bills from other people.

Compulsory third party (CTP)

In all Australian states you need to have CTP insurance before you can register your car with your local road and transport authority. Some states include the price of this in your car’s registration. Drivers in NSW, SA and QLD are free to choose their own CTP insurance provider. All vehicles except trailers and caravans must have Compulsory Third Party (CTP) insurance (sometimes called a green slip).

It covers medical bills and personal injury liability if you cause an accident, including injuries to yourself, passengers, other drivers and people on the road. In some circumstances, CTP insurance covers you regardless of who was at fault.

It doesn’t cover damage to your car or another person’s property in the event of an accident, which is why you need to purchase additional Comprehensive or Third Party insurance on top of CTP.

Agreed Vs. Market Value Car Insurance

Most insurers will also give you the option of market or agreed value in the event that your car is written off.

  • Market value represents the market value of the car at the time of the claim, taking into account the condition of the car based on its age, make and model.
  • Agreed value is the value of the car as agreed by both you and the insurer and is fixed until the policy renewal date.

Before you adjust your seat, turn on the radio and drive away, it’s important to understand some of the finer details of car insurance – particularly how your car is valued should anything happen to it.

How are premiums worked out?

Insurers consider a wide range of factors before determining your car insurance premium. Some things can’t be changed or avoided, but knowing how your premium is figured out can help you reduce your premium. Some of the main factors used to determine your premium include:

  • Age and gender: Australian male drivers are over three times more likely than women drivers to have a fatal car accident3. In some states, younger male drivers are also statistically more likely to be in a fatal accident than older male drivers4. This means young male drivers will usually have higher insurance premiums, whereas women drivers will have lower premiums.
  • Car type: You can’t do much about your age, but you can choose your car wisely if you want a cheaper insurance premium. Some cars are associated with younger male drivers and street racing, while others simply cost more to repair or replace. Researching the cheapest cars to insure can help you keep insurance costs down.
  • Security: Crime rates vary by suburb and may factor into your premium5. If you park your car in a suburb with a high crime rate, your premium will likely be higher. You can usually reduce your premium by keeping your car parked in a garage or under a carport overnight, regardless of where you live.
  • Driving history: The way you drive is a major factor in the cost of your insurance premium
  • Kilometres: Every time you drive on Australian roads, the chances of you having an accident slightly increase. Cars drive an average of 13,000 kilometres per year in Australia6. If you drive less than the average, you may find policies that reward you with a cheaper premium1. However, if you drive much more than the average, your premiums will likely be higher. Some insurers will limit your cover if you exceed the total kilometres you’ve advised, or increase your excess. Speak to an iSelect consultant to determine how a policy can work to your advantage.
  • Extras and excess: Each policy has potential extras that you can select, like windscreen cover and agreed value. Each extra you choose normally increases your premium, so be sure to choose only those that you need. Likewise, the level of excess you choose will increase or lower your premium. The more excess you pay, the lower your premium. Just make sure you keep your excess at an affordable level so you’re able to pay the excess in the unfortunate case of an accident.

How can you reduce your premium?

Now that you know more about how insurers determine your policy premium, you can do everything possible to keep your premiums down.

1. If you haven’t yet bought a car, choose wisely so you’re not paying unnecessarily high premiums for a car with an insurance stigma.

2. If you don’t need to drive, take public transport or carpool instead. Reducing your average kilometres per year can help reduce your insurance bill.

3. Consider whether claiming in a minor accident is really necessary. It might be worth covering the cost of repairs yourself to avoid losing your good driving history.

4. Keep your car secure by installing a car alarm and immobiliser and by keeping it parked in a garage overnight.

5. Choose extras and excess carefully to avoid unnecessary hikes in your premium.

Above all, be open and honest with your insurer to get a policy that meets your needs. In the case of an accident, insurers won’t cover damages if it’s found that information on file is incorrect. Update insurers with any changes for the same reason – you don’t want to find yourself unprotected when you really need it.

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