What type of car insurance should I buy?

Not quite sure what the difference is between comprehensive insurance and third-party insurance? Our tips will help you understand and choose the car insurance that is right for your car and your circumstances.

Car insurance is important. No one likes paying for it – and if you’re lucky, you’ll never need to make a claim. But without it, you could find yourself in a serious pickle.

Even if you’re driving around a bomb with a state-of-the-art 1980’s cassette stereo that’s worth more than the car, all it takes is one prang with someone else’s brand-new Maserati, and you are in for a world of financial pain. Unless you have insurance.

So what type of insurance should you get?

There are four main types of car insurance:

1. Comprehensive
2. Third-party
3. Third-party, fire and theft
4. Compulsory third-party

Comprehensive car insurance is the full package. It covers the repair or replacement of your car in the case of theft, collision, fire, malicious damage, weather damage and more. It also covers damage that your vehicle causes to other people’s cars or property.

Third-party insurance (sometimes called third-party only insurance) covers damage to other vehicles or property. It generally doesn’t cover any damage to your car (though some insurers cover a limited amount of damage to your vehicle if you are in an accident caused by an uninsured driver).

This is just like third-party only insurance, except that it also covers damage to your car if it’s stolen or damaged by fire.

Also known as a green slip, compulsory third-party (CTP) insurance covers compensation costs if you injure or hurt someone in an accident. Having a green slip is mandatory. In New South Wales you pay for it separately when you register your vehicle. In other states and territories it’s included in your registration.

Of the three optional insurance policies – comprehensive, third-party, and third-party, fire and theft – which one is right for you?

If your car is in good condition and it would hurt to replace it using your own funds, you might choose a comprehensive policy.

If your car isn’t worth much, you might go for the cheapest option: third-party insurance. However, if you think it’s at risk of theft (for example, if you regularly park on the street) you might consider upgrading that to third-party, fire and theft.

1. What does the car insurance policy cover?

Don’t just go for the cheapest policy. When you’re comparing policies, look at what they cover and what they exclude. Policies might include (or offer as optional extras) anything from personal effects cover to windshield damage, and from car hire to a taxi ride home after an accident. If you really want to understand what you’re signing up for, read the policy’s product disclosure statement. And don’t be afraid to get on the phone and ask questions.

2. Does the car insurance cover flood damage?

Most comprehensive policies do cover flood and storm damage, though your insurer may not accept your claim if you’ve done something considered reckless, such as driving through flood waters.

3. Does the car insurance cover engine failure?

If your engine is damaged in an accident, by vandalism, or by water or fire, then yes, it’s possible your insurance policy will cover it.

However, if your engine has a mechanical failure, forget about it. This sort of thing is covered under warranties, rather than insurance.

4. How is my car valued?

A policy will insure your car for either its market value or agreed value. With market value, in the case of a claim in which your car has been written off or stolen, your insurer will determine what your vehicle would have been worth on the open market at the time of the accident, taking into account its age, condition and so on.

With agreed value, the insurer and owner agree on the value of the vehicle when the policy is taken out. This figure is usually higher than market value, and, as a result, you will need to pay higher premiums.

5. How can I make my car insurance cheaper?

Shop around. But be aware that if you’re using comparison sites, they may not offer the full range of insurers to choose from; just the ones that pay them a commission.

One of the easiest ways to reduce your premiums is to increase your excess (the amount you need to pay in the event of a claim). Play around with this, and see how increasing your excess reduces your premiums (and vice versa).

You can also save money by having multiple policies with the same insurer. And you might also be able to save by parking off-street, installing security devices in your car and completing a defensive driving course.

^Disclaimer

^{Viva Energy Australia Pty Ltd (“Viva Energy”) has compiled the above article for your general information and to use as a general reference. Whilst all reasonable care has been taken by Viva Energy in compiling this article, Viva Energy does not warrant or represent that the information in the article is free from errors or omissions or is suitable for your intended use.}