Buying a car, or other motor vehicle, is exciting. You may have spent weeks poring over websites and  test driving different models. You’ll also need to think carefully about vehicle insurance. Car insurance can protect you financially if something goes wrong. Always have insurance in place before you take possession of the vehicle.

Types of car insurance

  • Compulsory third party (CTP) insurance covers death and injury to people if you are involved in an accident. Check your state or territory’s roads and transport website for rules relating to this type of cover. Some states include this as part of your vehicle registration, others separate it out. You are required by law to have CTP insurance.
  • Third party property insurance only covers damage to other people’s property, such as an expensive car that you collide with. It doesn’t cover your vehicle at all, unless the policy includes an ‘uninsured motorist extension’ that covers you if your car is damaged in accident where you’re not at fault.
  • Third party, fire and theft insurance covers you for damage to other people’s property, and provides limited cover for your car as a result of fire or theft.
  • Comprehensive insurance covers you for loss or damage to your car as well as damage to other people’s property if your car is in an accident. Remember, damage to your car can occur from weather and other unforeseen events, not just other drivers. If you want comprehensive cover then you need comprehensive insurance.

When choosing an appropriate level of insurance, ask yourself:

  • Can I afford to repair or replace my vehicle if I get into an accident?
  • Can I afford the cost of damage to other vehicles or property? (Few people could afford to replace a new Maserati!).
  • How will I get around if my car is stolen or written off?
  • If my vehicle is financed, does the lender require me to have comprehensive insurance?
  • If I can’t afford the insurance, can I really afford the vehicle?
Case study: Jack’s costly mistake

Jack came back from deployment and decided to spend his deployment money on a brand new 4x4 ute. Jack had $50,000 but bought a $60,000 car, taking out a personal loan for the difference. Jack thought his driving skills were excellent, but being a young driver, comprehensive car insurance was expensive, so he only took out a third party property policy, convinced he was unlikely to have an ‘at fault’ accident.

But Jack did have an accident. Driving back to base one day, he failed to see the car in front stop, and crashed into the back of it at high speed. Fortunately, no one was seriously hurt, but Jack’s car sustained nearly $20,000 worth of damage and was not drivable.

Jack’s third party property insurance covered the damage he caused to the other vehicle but he was left with a wreck he couldn’t drive and a loan he still had to repay.

If Jack had bought a cheaper car and paid for comprehensive insurance, his car would have been repaired or replaced and he wouldn’t have a debt draining his finances.

Choosing a car insurance policy

Car insurance policies are based on either ‘agreed’ or ‘market’ value. An agreed value policy has a set dollar value for your vehicle. Market value policies value your car based on the make, model and condition. The agreed value is usually higher than the market value.

Most insurance policies have an excess, which is the amount you will have to pay if you make a claim, unless another person can be identified as being at fault. You may be able to lower your insurance premium by agreeing to a higher excess, or lower your excess by agreeing to a higher premium.

Make sure you understand what is and isn’t covered. Some typical car insurance exclusions to watch out for include:

  • Damage from mechanical failure, modifications, rust, and wear and tear
  • Damage caused because your car was unsafe or in a race
  • Intentional damage
  • Damage caused if the driver was unlicensed, or under the influence of drugs or alcohol
  • Damage caused if the driver wasn’t covered by the policy – for instance, if they were under 25

Be honest with your insurer

Always tell the truth because making a mistake in the information you give your insurer, whether it’s deliberate or not, can affect the premium you pay. If you’re not completely honest with your insurer they could refuse to pay if you try to make a claim.

You must also inform your insurer if your circumstances change. For example, if you:

  • Modify your car (e.g. non-standard wheels, tinted windows, woofers and kits)
  • Move house
  • Allow other drivers to use your vehicle
  • Use your car for work

Tips for saving on car insurance premiums:

  • Drive safely to keep a clean driving record
  • Compare premiums and excesses of policies that suit your needs
  • Bundle your insurances with one insurer to get discounts
  • Add security devices to your car
  • Don’t make unnecessary modifications to your car
  • Review your policy before you renew. Make sure you are happy with the insured value, and compare your cover with similar policies to make sure you are still getting value for money

Making a claim

If you have an accident, contact your insurer straight away. Use your smart phone to take pictures of damage to your vehicle and any other property involved, vehicle licence plates and the driver’s licence of any other drivers involved. This can provide a handy reference if there are any disputes following an accident.

Depending on how serious the accident is, you may need to fill out a police report. If you suspect another driver is under the influence of drugs or alcohol or they are refusing to provide their licence details, ask the police to attend the accident scene. When you’re making the actual claim, put in as much detail as possible.

Young drivers

The cost of insurance is determined by the level of risk your insurer is taking on. As young drivers are involved in more accidents than older drivers, most insurance companies charge a higher premium for drivers under 25.

Young drivers may have to pay an additional ‘age excess’ when making a claim. Always check your policy carefully to see what excesses might apply.

Insurance and finance from a car dealer

Car dealers will often try to sell you a range of additional products. Here are some tips on what to look out for:

  • Vehicle finance. Ask what the interest rate is and what your actual repayments will be. Compare this with what other lenders are offering
  • Comprehensive insurance. Lenders can insist you take out comprehensive insurance as part of the loan, but they can’t tell you which insurer to use. Comparison websites are a good place to start when comparing policies
  • Gap insurance. This pays out your loan if your car is written off and there is a gap between what the car is worth and what you owe on the loan. Gap insurance can be expensive and the better option is probably to wait and save a larger deposit so that you don’t have to borrow as much
  • Consumer credit insurance. Covers your loan repayments for a set amount of time if you can’t work due to illness or unemployment. Consider whether full time ADF members really need this, given your current employment / insurance arrangements
  • Breakdown insurance. Covers the cost of repairs to your car and can be expensive. If you are buying a new vehicle, this may be included free for the first few years. You may be better off putting this money towards a better car or building up an emergency fund