Short-term car insurance explained

Short-term car insurance in Australia offers temporary vehicle coverage designed to provide flexibility for various short-term needs. Unlike traditional long-term policies, these options cater to drivers who require coverage for as little as one day up to several months. 

As the name suggests, temporary car insurance or short-term car insurance is a stop-gap measure. Most Australian insurance providers do not necessarily offer temporary car insurance policies, which means you’ll have to research the options you do have to fit your preferred situation. 

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It is a legal requirement that all registered vehicles in Australia possess compulsory third-party (CTP) insurance (a green slip), and this includes rental vehicles. However, it’s worth double-checking the registration papers for any vehicle you’re hiring to ensure that the registration has not expired, which would nullify any insurance claims. 

Although you’ll be covered for injuries sustained to other drivers if at fault in an accident, you’ll need to have additional insurance for further coverage. When you rent a vehicle in Australia, most rental companies will offer optional comprehensive car insurance. 

These insurance products come at a cost and can seem expensive. This is because it’s a short term policy and you generally won’t be given an option to choose between insurers. You’ll simply have to go with the rental company’s preferred insurer. 

It’s important to carefully read the insurance policy’s product disclosure statement (PDS) to understand exactly what you’ll be covered for, the excess costs - which can be starkly higher than typical excess charges - and how to make a claim if you’re involved in an accident. 

While there may be limited providers offering temporary car insurance in Australia, here are some alternatives you may consider instead: 

A ‘pay as you drive’ car insurance policy 

'Pay as you drive' car insurance offers comprehensive coverage similar to traditional policies. However, the cost of the policy is typically calculated based on the distance and frequency that you drive, rather than a lump sum payment. 

If you’re sure about the amount of driving you’ll be doing, or not doing, this policy may be a convenient option. However, if you end up driving a lot, a ‘pay as you drive’ policy can prove to be an expensive option. Insurers may need to regularly check your odometer and increase costs based on additional driving. 

A car insurance policy with monthly, fortnightly, or weekly payments 

When seeking a car insurance policy for a short duration, you might consider one that allows you to pay premiums weekly, monthly, or quarterly. These policies often come with the option to cancel as needed. However, you’ll need to research the terms and conditions around cancellation for such a policy or see if you can negotiate with the insurer to minimise costs. 

Insurers may be more willing to offer temporary car insurance to existing, previous, or potential long-term customers. But when you choose a flexible premium payment plan, the insurer may charge extra administration fees to cover the costs associated with providing temporary coverage. 

Alternatively, you could simply buy an annual car insurance policy and cancel when you no longer need it. This may be more cost-effective and convenient if you buy a policy that offers free cancellation. 

Also, since insurers will generally refund the unused portion of your premium, pro-rata, so you don’t have to worry about losing money after paying the annual premium upfront. This way you can take advantage of any discounted rates offered by taking out an annual policy. However, you’ll need to confirm with the insurer that you are able to cancel the policy at any time without incurring any additional charges. 

Adding a driver to an existing policy 

If you're borrowing a car from a friend or family member who already has an insurance policy, consider being added as a driver to their policy. This can provide you with the necessary coverage without needing to purchase a separate short-term policy. However, keep in mind that adding a driver to an existing policy may increase the premium for the owner. 

When you buy temporary comprehensive car insurance, you may pay a smaller amount compared to the cost of an annual policy. However, beyond a month or two, a short-term policy is likely to be a more expensive option. It’s also tougher to compare short-term policies, making it difficult to know if you’re getting a good deal. 

You’ll want to consider how long you’ll need the insurance policy and decide if it makes more sense to buy an annual policy and cancel at a later time. 

You may not be able to use the usual tools to compare temporary or short-term car insurance policies. But with a little work and some personal research, you can still compare policies. Suppose you find an insurer offering a car insurance policy that you can sign up for temporarily, meaning you can cancel when you need to. The first thing you should measure is the cost of the policy - compare the cost of the temporary period to the annual cost of the policy. 

For example, if the insurer offers you a policy with an annual premium of $1,200 and the monthly premium for your temporary policy is $150, this is a significant difference in cost. Theoretically, the $1,200 annual premium divided by 12 should equal a monthly premium of $100. This difference in cost means you may be making the trade-off between getting a discount for paying an annual premium and buying what you envision as a temporary policy. 

In addition to charging a higher monthly premium, the insurer may also charge you an administration fee for providing a flexible payment option. There may also be more fees you have to pay when you decide to cancel the policy before the year is complete. Ideally, you should ask the insurer for full disclosure regarding any extra fees or charges before you agree to buy the policy. 

It's also worth remembering that while a temporary car insurance policy can be convenient, it carries the risk of driving without coverage if the policy expires and you forget to renew it or switch insurers. Always keep track of your policy's expiration date to ensure continuous coverage.