How does car insurance work in Australia?

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

Choosing a cheaper alternative can be tempting, but if it does not provide the right kind of coverage, it could cost you a lot more in case of an accident. So, it is good to know the types of insurance available to car owners and the protection each of them offers.    

There are four main types of motor vehicle insurance. 

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

Let us look at each of these in some detail. 

How does Third party car insurance work?

Third-party insurance covers injuries caused to other people and damages 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, and it is illegal to drive without at least this amount of insurance. CTP covers the people that might get injured if your vehicle is involved in an accident. But it does not cover injuries to the driver and passengers of your car, and neither does it cover damages to your vehicle, other vehicles, or property. You pay the least premium for this type of insurance but could 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 your 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 damages due to a fire or theft. 

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. 

Additionally, it also covers theft, damages due to fire, arson, and certain weather events. But it is essential to know that there can be some exclusions even in a fully comprehensive insurance policy. So, you should check the policy document carefully to avoid any last-minute surprises. 

If you have a new car or a car in a good state of repair, a comprehensive insurance policy would be the ideal choice, despite it attracting the highest premium. Comprehensive car insurance is also a highly competitive market, so comparing products from different companies is a good idea. 

How does car insurance work for new drivers? 

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

Similarly, the age and driving experience of the nominated driver is 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 of the common queries about car insurance are:

How do multi-car insurance policies work?

If you own more than one car or live in a household that does, it is possible to cover all the vehicles under a single policy. Usually, this can be done for 2 to 5 cars. With a multi-car insurance policy, you reduce the amount of paperwork, and there’s only a single payment to be made. Insurers can 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?

Usually, rental cars only have compulsory third party cover included in the rental agreement. Your rental agreement may have a mention of insurance excess, which is actually the maximum amount of money you have to pay if the rental car is damaged or stolen, and not a liability cover. 

So accidents, theft or other damages could result in considerable expenses to you. Although some comprehensive car insurance policies include a rental car cover, it increases your premium and should be included only if you plan on renting frequently. A better option is to buy car rental excess insurance when renting a car. 

Compare car insurance