Things you’ve always wanted to know about car insurance (but were too afraid to ask)

Alex Koster 27 October 2017 NEWS

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Do I actually need it? What's legal liability? An excess? Premiums? Wonder no more.

Some questions don’t have answers. These aren’t them.

Get detailed answers to the car insurance questions you were too scared or frankly uninterested to ask.

In this guide you'll learn:

How does car insurance work?

Think of it like this. When you have an accident, there are two things that can happen. You can damage someone else's things, or you can damage your own. With this in mind, you can divide car insurance into two different types of cover:

  • Liability cover: This is the type of cover that pays for your liability to others. What's liability mean? That’s when you’re being held responsible for damaging other people’s property or paying them some kind of compensation if you injure them. So consider this: you lose focus for a moment and end up rear-ending another car. If you've got liability cover, then your insurer should cover the repair costs of their car.
  • Car damage insurance: This type of cover pays for repairs to your car or can reimburse you if it's written off. So imagine you're cruising along and another driver rear-ends your flashy car. Your insurers should pay the repair damage for you. Legends!

Generally, there are 4 different kinds of car insurance you’ll find in Australia, with different combinations of damage and liability cover.

  • CTP: This is liability insurance for serious injuries in road accidents. It’s mandatory and you need to have it in order to register a car.
  • Third party property car insurance: This is liability cover for damage to other people’s property.
  • Third party property with fire and theft: Third party liability cover as above, plus fire and theft car damage for your own vehicle.
  • Comprehensive car insurance: Liability cover as above, plus damage cover in a wide range of situations, such as hail, accidents, and everything else.

Only CTP insurance is mandatory, but you'd probably have to be crazy to drive without some extra cover.

Why is third party property cover so important?

Even a perfect driver might end up being liable for an accident, and might end up liable for tens of thousands of dollars of damage.

The high costs and relative ease of becoming liable for such huge sums means that third party property liability insurance is a very good idea, even if it’s not mandatory.

Is car insurance compulsory?

Some types of car insurance are mandatory, others aren’t.

The mandatory car insurance is called CTP (compulsory third party) insurance. You might know it as a green slip. Generally you won’t even be able to register a car without having this.

In specific situations, other types of car insurance might also be mandatory. For example, comprehensive car insurance might be mandatory with certain car loans.

In every state except NSW and the ACT, and sometimes QLD, it’s automatically built into car registration and you have it automatically.

CTP insurance does not cover any kind of property damage. Instead, this is the liability insurance that compensates drivers for serious injury, permanent disability, medical expenses and similarly terrible regular occurrences.

Each state manages its own CTP schemes with varying degrees of competence and compassion. If you want to find out how CTP insurance works for you, you’ll need to look at your location.

What’s a premium?

The premium is how much you pay for car insurance. Your monthly premium would be how much the insurance policy costs per month, while your annual premium is how much it costs per year.

Premiums are usually paid in advance for the upcoming period. So by paying the monthly premium you’re basically buying cover for the upcoming month.

Car insurance doesn’t have a set price. Instead, premiums are based on your individual circumstances. Some of these factors push prices up, others push them down.

For example, consider the accident, flood and theft cover you’ll find in a comprehensive policy.

  • Accidents: The odds of this are determined by factors including age (under 25s are statistically terrible drivers) and gender (men are statistically worse drivers than women).
  • Flood: The odds of this happening down to your address, and not affected by age or gender.
  • Theft: The odds of having your car stolen are largely determined by your address, whether you park in a locked garage or on the street and what kind of car you have.

You’ll probably have some factors pushing your premiums up and others pushing them down.

Three of the big ones are your address, your vehicle and your claims history, because they determine the likelihoods and costs of practically everything covered by comprehensive car insurance.

  • Your address: This determines the odds of everything from flood to theft to risk of accident to the potential costs of an accident. For example, a rich neighbourhood might have its theft cover premiums pushed downwards because it’s safer, but its property damage liability insurance premiums pushed upwards by all the expensive cars and properties.
  • Your vehicle: This determines how much the insurer will have to pay for repairs or replacements, and therefore all damage cover premiums. It has other results too. A more powerful engine tends to mean more damage to other property in an accident, which can mean higher liability insurance premiums. And sometimes one make or model of car will just be a very trendy target for theft, and your theft cover premiums might go right up.
  • Your claims history: This is what it all comes down to, so insurers pay attention to it.
Can I lower my premiums?

If possible, you can often get better value for money with a “bulk discount” of sorts, by paying annually.

Other than that, it’s largely down to shopping around. Each insurance company considers different factors and ties them together in different ways.

For example, one brand might be able to get a great deal on Toyota parts and will offer lower premiums for that brand. Another might decide it’s not the cost of running the numbers on certain risk factors, and won’t consider that factor when setting premiums.

So with car insurance in particular, shopping around can make a big difference. It’s also worth snagging discounts where available.

If you’re reading this, then the online discount is probably one of the easiest savings you can find. Insurers want you to sign up online, because it’s pretty much automated and reduces their administrative costs.

What’s an excess?

Technically the excess is a contribution you need to make towards the first part of a car insurance claim before an insurer will pay the remainder.

But that’s kind of complicated, so you might as well just think of it as a fee to pay when you make a claim.

For everyday car insurance, each excess is usually in the ballpark of $100 to $500.

Your excess is another one of the many factors affecting your premiums, with a higher excess leading to lower premiums.

Your policy might have more than one excess.

  • Basic excess: Where you’re able to choose your own excess, this is usually the one you’re choosing. It applies to most claims.
  • Unlisted driver excess: Some policies will only cover drivers who are listed on the policy, while others will let anyone drive the car. The latter will often have an “unlisted driver excess”, so it costs more to make claims if the driver’s not listed on the policy.
  • Age or experience excess: Some policies might apply an additional excess to claims made if the driver at the time was under the age of 25 (age excess), or to drivers over 25 who have held their license for less than 2 years. In both cases the idea is to help compensate for the extra risks associated with inexperienced drivers.

Not all claims will incur an excess. For example, weather-related claims often won’t incur any age or experience excess, because the incident had nothing to do with the driver’s age or experience.

And sometimes specific claims will have their own excesses too.

For example, the “locks and keys” extra, which lets you claim changed locks and rekeying if your car keys are stolen, might have its own flat excess of $100 even if your standard excess is $500.

What’s an underwriter?

The insurance industry has a few different layers. This applies to most types of cover, in most countries around the world. It’s not just for car insurance.

  • The insurer: This is the pointy end of the industry, made up of the brands that sell policies to customers. They’re mostly about the selling.
  • The underwriter: This layer is the number crunching and policy-writing. The underwriters create the actual insurance products being sold. The premiums paid by the customer are usually divided between the insurer and the underwriter.
  • The reinsurer: This is insurance for insurance companies, to help prevent them from getting wiped out when they have to pay a big claim for a natural disaster.

Sometimes the same brand might occupy more than one layer, while other times they might be separate.

For examples:

Does the underwriter matter for car insurance?

No and yes. You can pick out car insurance perfectly well without paying any attention to the underwriter, and don’t really need to know it.

But it can be a helpful time-saver if you’re really keen on comparing car insurance like a pro.

For example, the whole “no claims bonus” (NCB) thing might seem like a core component of car insurance, but if you take a closer look at it, you might realise that it in Australia it’s mostly just a staple of policies underwritten by Auto & General Insurance, plus a couple of others.

If you aren’t interested in futzing around with the NCB, you might immediately rule out that underwriter.

What’s a no claims bonus?

Some insurers will offer a discount for customers who go a certain length of time without making an at-fault claim. This is often called a no claims bonus, NCB, no claim discount or whatever else sounded good to the advertisers.

But even with a no claims bonus, you might still see your premiums rise following a claim. This is not the same thing as getting lower premiums you’ll find for not making claims.

Did you know?

Wait. What's the difference?

Your claims history affects your premiums, while the no claims discount is just a separate deal doing its own thing.

Your premiums might still go up even as your no claims bonus increases. Consider the following example:

You currently have a 10% no claims discount and at the end of the year it will be increasing to 20% provided you don’t make an at-fault claim.

Then a hailstorm comes along and trashes your car, so you make a no-fault car insurance claim.

At the end of the year your no claims discount increases from 10% to 20%, but your claims history means your premiums have also increased by 20%.

Even though your no claims bonus has gone up, your car insurance is still more expensive than it was the year before.

The no claims bonus will usually only apply to non-fault claims. Depending on the insurer, making an at fault claim will either decrease your NCB, or reset it to zero.

To prevent this, some insurers will then offer an extra-cost option usually referred to as “protected no claims discount.” It costs more, but lets you make an at fault claim without losing your no claims bonus.

The upside of the no claims bonus is that it’s a discount.

The downsides are that it functionally penalises you for making a car insurance claim and actually using your policy, it makes it harder to switch between insurers if you need to find one that recognises your no claims bonus, your premiums might still go up following a no-fault claim regardless of your discount.

And if you take the option of protecting your no claims bonus then you’re actually paying extra to get a discount and the whole world has gone mad. And your premiums will probably still go up anyway, regardless of the no claims bonus.

Do I get paid out even if I’m at fault?

It all depends on what kind of insurance you have.

  • Comprehensive car insurance: Yes. You can still claim your vehicle damage if you were at fault.
  • Third party property damage liability insurance: Yes, but not to you. It compensates the person whose property you damaged, on your behalf.
  • CTP insurance: It varies between states.
What’s the difference between at fault and no-fault damage claims?

For a no-fault claim, you might not have to pay the excess, and your premiums might not be impacted as much as they would be for an at-fault claim.

The idea is that the at-fault driver’s third party property liability insurance will cover the full cost of damage.

It also affects the “uninsured driver cover” found with many third party property liability insurance policies. With that, you’re covered for a limited amount of damage when not at fault, if the at-fault driver has no insurance.

How to work out who’s at fault

If you’re not sure who’s going to be found at fault for an accident, it’s probably you.

  • For single vehicle accidents: The driver is always at fault. For example, if they slip on an icy road and drive into a tree, or have a heart attack while driving.
  • For multi-vehicle accidents: The driver is always at fault unless they can identify the at fault party.

If you look at the “claiming” section of an insurance policy, you’ll generally see the information you’ll need to provide in order to make a not-at-fault claim in a multi-vehicle accident.

Typically, you will need the other driver’s full name, address, contact number, registration number and insurance details. Or failing that, at least enough information that the insurers can contact them without spending too much time and effort on it.

If you didn’t manage to get all of these details. Such as because you were shaken up following a car accident, they simply drove off, they lied about their details, they mistakenly gave the wrong details or the insurer otherwise can’t get a hold of them, then you’re at fault.

You can still claim the damage on comprehensive car insurance, but will have to pay the excess and might get hit with rising premiums.


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