“I can’t wait to buy car insurance”... said no one ever.
Whether you’re looking for your first car or your next car, the right insurance is a legal and financial safety net that protects you (and other drivers), so you can enjoy your time on the road.
With various terms, prices, rules and coverage options, it’s normal to feel a little overwhelmed. Thankfully, with the right information, you can drive away with car insurance that meets your needs, budget and lifestyle.
And since the topic of car insurance can be drier than overcooked lamb, our Fido Finance experts have covered every question you’ve thought of (and then some), with the simple, no-frills answers you need to get insured, save money, and hit the road.
Table of Contents
How does car insurance work?
Car insurance helps protect you in the event of an accident or incident.
This could be a fender bender at the traffic lights, someone stealing your car while you’re asleep, or accidental damage in the garage while your car is parked at home.
Fingers crossed you don’t need it, but if something goes wrong, here’s how your car insurance works to look after you:
BEFORE ANY ACCIDENT
- You pay the insurer for your policy: this is known as your ‘premium’ which can be paid monthly or annually (there may be a handy saving in paying yearly, so it’s worth comparing your options).
BEFORE ANY ACCIDENT
- Your insurer will issue you with a Certificate of Insurance: this document outlines your selected cover, sum insured, optional benefits (if applicable), listed drivers and excess.
AFTER ANY ACCIDENT
- You make claims within your insured period: hopefully nothing goes wrong, but if your vehicle is affected by an insured event (like an accident or theft), your insurer will work with you to determine what you’re entitled to claim.
Your insured period will typically be 12 months, although shorter six-month policies may be available.
What does car insurance cover?
Answering this question is like answering “How long is a piece of string?”
The good news is that, depending on where you live, buying a roadworthy and registered car means you have some insurance coverage already (nice work).
In Australia, all registered cars are legally obligated to have Compulsory Third Party (CTP) insurance. This means a vehicle can’t be registered without a CTP policy – although the details of how it works vary from state to state.
In NSW…
CTP insurance is commonly referred to as a ‘Green Slip’. You need to buy your Green Slip before registering your vehicle with six insurers available (AAMI, Allianz, GIO, NRMA, QBE and Youi).
In Queensland and South Australia…
CTP insurance is included in the registration process. Government-approved insurers in Queensland include Allianz, QBE and Suncorp. Approved insurers in South Australia include AAMI, Allianz, NRMA, QBE, and Youi.
In Victoria, Tasmania, Western Australia and the Northern Territory…
CTP insurance is Government-run and arranged for you when you register your vehicle.
In the ACT…
You can choose to purchase Motor Accident Injury (MAI), which functions like CTP insurance. Approved providers include AAMI, Apia, GIO, and NRMA.
FIDO SAYS: CTP Insurance is mandatory in Australia, but you can choose whether to take out other types of insurance. Some insurers offer optional benefits to extend your level of cover and convince you to sign up, so it pays to shop around and compare your options.
What insurance coverage should I consider?
While CTP is the most basic coverage, you can add extra levels of protection. It’s worth mentioning that extra coverage comes with higher costs as a trade-off, but it’s hard to put a price on the peace of mind that comes from knowing you’re financially protected if something goes wrong.
The four main types of car insurance in Australia include:
- Comprehensive Car Insurance
- Third Party Fire and Theft Insurance (TPFT)
- Third Party Property Damage (TPPD)
- Compulsory Third Party Insurance (CTP)
Some car insurance products also offer additional benefits, either already included or available at an extra cost, such as glass cover or hire car cover.
Let’s take a closer look at each option to find the right coverage for you.
Comprehensive Car Insurance
Comprehensive Car Insurance is the highest level of coverage available. It covers damage to your car from accidents, theft, vandalism, and natural disasters (in other words, comprehensive protection). Since accidents happen, you’ll also be covered for damage caused to other vehicles or property.
EXAMPLE: Steve is driving to work and gets caught in a hailstorm. $5,000 worth of damage is done to his windshield and windows. Because he has comprehensive car insurance, his provider will cover the cost of repairs after Steve pays the excess. Steve pays his $1,000 excess when he makes a claim, and his insurer pays the remaining $4,000 to repair the damage.
Third Party Fire and Theft Insurance (TPFT)
Third Party Fire and Theft (TPFT) car insurance covers your liability for damage your car causes to other people’s property and vehicles. It also gives you peace of mind if your car is stolen, damaged due to an attempted theft, or destroyed by fire. This does not cover accidental damage to your vehicle in a car accident.
EXAMPLE: Amanda parks her car on the street overnight and wakes up to find her car has been damaged by fire. The cost of repair is $2,000, but since she has Third Party Fire and Theft insurance, Amanda pays a $600 excess and her insurance provider covers the remaining $1,400 for repairs.
Third Party Property Insurance (TPP)
Third Party Property (TPP) car insurance covers the damage your vehicle causes to someone else’s car or property in an accident where you are at fault. Like Third Party Fire and Theft, this policy does not cover damage to your own vehicle in the event of an accident.
EXAMPLE: Sarah is backing out of a parking spot at the supermarket and accidentally hits a Tesla, causing $20,000 in damage. Because Sarah has Third Party Property insurance, her provider will cover the cost of repairs after she has paid her excess. However, Sarah’s insurance does not cover the damage to her own car.
Compulsory Third Party Insurance (CTP)
As we touched on, Compulsory Third Party (CTP) insurance covers the cost of third-party compensation claims if you, or anyone driving your car, injures someone in an accident. Third parties include other drivers, passengers, motorcyclists, cyclists and pedestrians.
You can expect to pay the lowest premiums on this type of insurance, but also receive the least coverage, which could mean you end up with a hefty financial liability in the event of an accident.
EXAMPLE: David is driving to a mate’s house and accidentally collides with the rear of another vehicle, injuring the other driver and their passenger. Because he has CTP insurance, David’s insurer will cover the full cost of the other party’s medical expenses. There is no excess for David to pay; however his CTP insurance does not cover the cost of damages to either vehicle in the accident.
How much does car insurance cost?
Car insurance costs will vary depending on your level of cover, with the amount you pay each year to maintain your policy being your premium.
Your insurer calculates your premium by estimating how likely it is that you’ll make a claim. That’s why a driver under 25 may have to pay a higher excess, because people under 25 are involved in more accidents on the road.
You may also have to pay when you make a claim. This is known as an excess, which is the amount you agree to contribute towards the cost of a claim.
For example: If your new car is damaged on the way to work and needs $5,000 worth of repairs and your policy has a $500 excess, then you’ll pay the $500 and your insurance will cover the remaining $4,500 to get you back on the road.
FIDO SAYS: Choosing a cheaper insurance plan can be tempting, but you could end up paying a lot more in the event of an accident. Before committing to a policy, make sure to read the fine print in your policy documents and figure out how you’d be affected if your vehicle is written off or requires repairs after an accident.
Factors that affect how your premiums are calculated
Your driving history
Your driving history will be used to determine your insurance premiums. Factors include:
- Loss of points
- Accident history
- Type of driving offences
- How recent your offences were
If you’ve had some trouble on the road, you may end up paying more for your car insurance premiums.
Your age
Fairly or not, young drivers are typically viewed by insurers as being more likely to have an accident due to their lack of experience behind the wheel. Statistically, males between 18-24 pose the highest risk for insurers and are charged premiums accordingly (more than $775 compared to an over-45 driver). Sorry, fellas!
Where your park
Where you park can impact the cost of your insurance premiums. For example, parking on the street in a suburb with a high crime rate can mean paying more than someone who parks in an off-street car park.
How you use your car
Vehicles for personal use are typically less expensive to insure than vehicles used for business. If you live in the inner city and spend less time on the road, you may benefit from lower premiums compared to a rideshare vehicle that’s on the road often.
Your car make and model
The more expensive your car, the more you can expect to pay to insure it. Premiums may also rise based on other factors, such as your car’s horsepower and the accident history of that vehicle type (this is why sports cars often come with higher insurance premiums).
FIDO SAYS: Paying less on your car insurance premiums is about being strategic. Strategies like paying annually instead of monthly, paying a higher excess (this is your out of pocket expense when making a claim), and shopping around for a cheaper insurer can all help you keep costs down in the long run.
Do I need car insurance if I’m getting a car loan?
If you’re purchasing a car with a vehicle loan, all lenders will require you to have Comprehensive Car Insurance in order to meet loan requirements.
This isn’t a legal requirement, the way CTP insurance is, but you will need to maintain your insurance coverage for the life of your loan – so it’s worth doing your homework to make sure you’re financially stable enough to meet your obligations.
When you finance your car, the vehicle serves as collateral. If your car is damaged in an accident or totalled (meaning the repair cost exceeds the car’s total value), full insurance coverage means the lender can still recover their money.
What to do BEFORE choosing car insurance
At Fido Finance, we recommend comprehensive coverage for all new cars (whether personal or business use), for peace of mind and protection.
If you’re planning to purchase a new car, the award-winning team at Fido Finance can provide clarity and confidence to help you find the best insurance coverage for your needs.
Our award-winning team can also provide the best rate for comprehensive insurance policies, so you can compare your options and confidently plan for the future without making a concrete commitment.
Contact a member of the team to understand your options or call us now at 13 34 36.
