Buying your first car can be an exciting time but comparatively tough on your wallet. As you’ve probably realised, the actual cost of a car is only the tip of the iceberg. There are a number of other expenses involved before you can get on the road.
Car insurance is one of the biggest expenses you will face. You must take out a compulsory third party (CTP) car insurance policy in Australia. You will also need to consider what type of damage cover is right for you.
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Understanding the different types of car insurance
You only need to worry about four different types of car insurance and they are all very distinct from one another.
Compulsory third party (CTP). Compulsory third party insurance will cover liability charges in the event you are involved in an accident. This cover ensures that the driver at fault will always have an insurance policy that can pay for any injuries caused.
Third party property (TPP). This is not mandatory, but it’s cheap and extremely important. Third party property covers the cost of property damage you might cause while driving. If you rear end a Mercedes Benz or have a heart attack behind the wheel and drive through the wall of someone’s house, you will most likely be liable for all the costs even if it wasn’t strictly your fault. Even the cheapest TPP car insurance usually covers at least $20 million worth of property damage.
Third party property with fire and theft. This policy gives you all the benefits of TPP insurance, along with fire and theft insurance for your car. Fire and theft are two of the most common causes of total car loss, so it’s a good idea to get the protection.
Comprehensive. This is the highest level of car insurance cover there is. Comprehensive vehicle insurance includes all the benefits of TPP insurance, as well as protection against fire and theft. What makes it different is that, unlike the other types of car insurance, it covers the cost of storm damage, flooding, hail, vandalism and much more. Depending on the insurer, you can also find a wide range of extras with comprehensive insurance and can customise your policy a lot more.
Compulsory Third Party
Third party property
Third party property with fire and theft
Comprehensive
Price
Affordable, regulated prices
Cheap
Relatively cheap
More expensive
Good for
Everyone
Very cheap cars, when you only want the most important types of cover
When you want a limited range of important cover for your own car, as well as TPP cover, at a low price
Effective all-around protection for your car
What about family car insurance policies?
You might want to consider joining your parent’s car insurance policy instead of taking out your own. You could also look at getting cover through a joint policy if you share a car with housemates. You can do this by adding new drivers to an existing policy or by selecting multiple drivers when taking out a new policy
Family policies refer to joint car insurance policies that are specifically designed to cover multiple drivers in the same household, even if the drivers all have different experience and risk levels. These policies tend to be more expensive than single policies, but may be a more cost-effective way for new drivers to get cover when everyone’s driving the same car. Despite these differences, family policies still come in the same varieties, with similar types of cover, as the ones in the table above.
You should compare joint and family car insurance policies in addition to other options to pick the one that meets your needs the best. Remember to look at the individual merits of specific policies, and not just policy types. Just because most family policies, or most single policies, are preferable for your situation doesn’t mean they all are or that it’s necessarily the ideal option.
How are prices determined?
Car insurance companies set their premiums based on factors that have been proven to make a difference to claim rates. For example, you might receive a discount for having a car alarm installed.
Premiums are higher for younger drivers because the chances of them being involved in an accident are statistically higher. To make matters worse, under 25s are also statistically more likely to be speed offenders, which means accidents involving young drivers are more dangerous as well as more likely to occur.
Others factors include whether you park on the street or in a garage, what colour your car is, how easy is it to get spare parts, whether you have any car modifications and more.
These factors can affect the price of both the premiums and the excess.
The premiums. These are the regular, ongoing costs of holding a policy. Typically payable annually, monthly or fortnightly.
The excess. This is a flat sum that you must pay whenever you make a claim. If your total excess if $500, for example, then you will need to pay $500 before you can make a claim under your car insurance policy.
Did you know?
How is the excess determined?
The total amount of the excess can be split into two parts.
Base excess. This is the core excess cost that come with your policy. You might be able to choose a higher base excess for lower premiums or a higher excess for lower premiums.
Additional excesses. These are further costs that may be added onto the base excess. Drivers under 25 will typically have an age-related additional excess, such as an extra $150 added on top. Other additional excesses might apply in certain situations, for example, if your car was being driven by someone not listed on the policy.
The cost of premiums will usually stay at the front of your mind, while the excess fall to the back. However, it’s important to keep both in mind because the cost of the excess is a big part of actually getting value for your money from your car insurance policy.
The six things you can do to reduce your prices
If you aren’t following any of these steps, it’s safe to say that you’re paying more than you have to.
Picking a cheap-to-insure car. Consider this before buying your first car and you can reduce your insurance costs before even taking out a policy. As a general rule of thumb, the cheaper, safer, greener and more common it is in Australia, the less it costs to insure.
Maximise discounts and buy online. Many insurers will offer a discount of 25% or more simply for buying your car insurance policy online. Also, many deals and discounts only work for online signups. Make sure you’re taking advantage of all the discounts you are entitled to.
Compare policies regularly. Price creep is an unfortunate feature of some car insurance policies. Pay attention to your renewal notices, check whether your prices are increasing for no apparent reason and don’t be afraid to shop around for a new insurer.
Maintain your vehicle. Insurers may reserve the right to refuse a claim where damage could arguably have been the result of regular wear and tear or poor maintenance. Keeping your car roadworthy and in good condition is a good idea.
Nominate your drivers. The cost of your policy is largely determined by the most at-risk driver on it. For example, if you’re a new driver with a clean record, it might cost you a disproportionate amount to include a driver with a history of speeding tickets or traffic infringements on your policy.
Vary your excess. Many insurers will give you a variable excess option, which essentially lets you choose your own excess. Opting for a higher amount can get you considerably lower premiums, while opting for a lower excess can cost less in the event of a claim, but more in premiums.
These are just some of the more significant discounts you might find, but there are many others as well. Look at more ways to save, or start comparing policies online if you’re ready to start looking at options.
Andrew Munro is the cryptocurrency editor at Finder. He was initially writing about insurance, when he accidentally fell in love with digital currency and distributed ledger technology (aka “the blockchain”). Andrew has a Bachelor of Arts from the University of New South Wales, and has written guides about everything from industrial pigments to cosmetic surgery.
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