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How does car insurance work in Australia?

Mark Bristow avatar
Mark Bristow
- 5 min read
How does car insurance work in Australia?

If you own and drive a car in Australia, you are legally required to have at least one form of car insurance: Compulsory Third Party (CTP) insurance. But with the number of other car insurance options available, choosing the right insurer that suits your needs can get confusing. 

Choosing a cheaper alternative can be tempting, but if you don’t have the right kind of coverage, it could cost you a lot more in case of an accident. It is good to know the types of insurance available to car owners and the protection each type offers.    

There are four main types of motor vehicle insurance in Australia: 

  1. Compulsory Third Party
  2. Third-Party Property
  3. Third-Party Fire and Theft 
  4. Comprehensive

How does third party car insurance work?

Third-party car insurance covers injuries caused to other people and damage to their property in the event of an accident. Third-party insurance can have varying degrees of coverage:

1. Compulsory Third Party (CTP)

CTP is mandatory insurance that every car needs to have in every state and territory of Australia to be legally registered. It is illegal to drive without at least this amount of insurance. CTP insurance is automatically included as part of the registration process in some states and territories, while other states allow you to select your own CTP insurer and purchase your policy separately.

CTP covers the people that might be injured if your vehicle is involved in an accident. But it does not cover injuries to your car’s driver and passengers, nor does it cover damage to your vehicle, other vehicles, or property.

You pay the smallest premium for CTP insurance, but in turn receive the least coverage – you could still end up with a considerable amount of liability in the event of an accident. 

2. Third-Party Property

This insurance covers damage to other vehicles and property in case of an accident. It does not cover damage to your own car, although some insurance companies may cover a certain amount of damage if your car was involved in an accident with an uninsured vehicle.

3. Third-Party Fire and Theft

In addition to third party property cover, this insurance also covers your vehicle from damage or loss if it catches on fire or is stolen

How does Comprehensive Car Insurance work?

As the name suggests, fully comprehensive insurance covers damages to your car, other vehicles (if caused by your car) and property, along with injuries sustained to all the people involved in the accident. It also covers theft, fire damage, arson, and certain weather events.

But it is essential to remember that some exclusions may apply to a fully comprehensive insurance policy. Check the policy document carefully to avoid any last-minute surprises. 

If you have a new car, or a used car in a good state of repair, a comprehensive insurance policy could be useful, though you’ll likely need to pay a higher premium. Comprehensive car insurance is also a highly competitive market, so comparing car insurance policies from different companies is often a good idea. 

How does car insurance work for new drivers? 

Insurance premiums consider a wide variety of factors, such as the type of policy, your driving record and insurance history, the type of vehicle, its intended use and even where the car will be parked. 

The nominated driver’s age and driving experience is also a significant factor. Since young and inexperienced drivers pose a higher risk of accidents, they also attract higher insurance premiums. Any driver under the age of 25 years is considered to be a greater liability by the insurance companies. 

Are there any other factors regarding car insurance that I should be aware of?  

Some common queries about car insurance include:

How do multi-car insurance policies work?

If you live in a household with more than one car, it may be possible to cover all of these vehicles under a single policy. A multi-car insurance policy can usually cover 2 to 5 cars, and may help to reduce the amount of paperwork, as there’s only a single payment to be made. Some insurers may also offer discounts on such policies, but since it may involve other drivers, their age and driving history could affect the premium.

How does rental car insurance work?

Rental cars need CTP insurance as part of their Australian registration, and often include insurance cover as part of the rental agreement. However, you may need to pay an expensive excess if the car is damaged or stolen while you’re driving it. You may be able to reduce or avoid paying this excess if you agree ahead of time to pay the rental agency an extra fee.

Some comprehensive car insurance policies include rental car excess cover, which may help to cover the cost of a rental car’s excess if necessary. However, this extra cover could increase your premium, and therefore may be more useful if you plan on renting cars frequently. 

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Product database updated 21 Jul, 2024

This article was reviewed by External Comms Lead Eden Radford before it was published as part of RateCity's Fact Check process.