With 19.5 million registered motor vehicles on Australian roads (as of 2019)1 most people understand that a car insurance policy is a good idea. So, how is car insurance calculated, and how much will it cost us?
Car insurance varies vehicle by vehicle and driver by driver. It’s often the case that drivers will take out cover but not fully understand exactly how the insurer arrived at their pricing decision.
We explain how some factors may affect your premium and ways to possibly reduce this cost.
Young drivers are reportedly involved in more accidents than their elders.2This means if you have young drivers on your policy, your premiums may be higher, given their risk profile. If you don’t need to insure any young drivers, shop around for a policy that offers a discount for older/more experienced drivers (i.e. driver age exclusion).
If you’re eager to keep your car insurance premiums down, one of the most important decisions you’ll have to make is selecting your car. Insurance premiums vary depending on the type of car you drive.
Consider the following:
Your insurance premium will vary depending on your car’s ‘home’ postcode. There is a higher risk in some areas that your car will be damaged or stolen, and insurance companies may take this into account when calculating your premium. Cars parked in off-street carports, garages and secure parking bays may carry a lower risk than vehicles parked on streets and in unsecured parking areas.
It’s important to make sure you inform your insurance company if your circumstances change, such as if you move to a new house. In some cases, these changes may even reduce your premium if you move to a lower-risk neighbourhood or a home with a lockable garage.
Your excess payment is a ‘customer contribution payment’ that a policy holder needs to make in the event of an at-fault claim. Generally speaking, the higher your excess payment, the lower your premium can be. However, think carefully before setting your excess payment too high, as you don’t want to put yourself in a bind later on if you need to make a claim.
Market value insurance covers your car for what it’s currently worth in the market when compared to similar makes and models in similar conditions, just before it was damaged.
Are those regularly driving the car careful, or do they live on the edge? How the regular driver uses the car makes a huge difference to your premium.
A final word of caution: when purchasing your car insurance, remember to disclose all information that’s being asked of you concerning the driving and claims history of all regular drivers. Doing so helps ensure that you’re covered and covered for the correct amount.
The type of car insurance cover you choose has an enormous impact on your premium. There are a few different types you can take out.
Third Party Property insurance protects you for the cost of repairs to third party property if there’s an accident and you’re at fault, usually up to a certain amount. This means that if you’re involved in an accident, your insurer pays your claim for repairs, damages or replacement to third party vehicles and property involved in the incident (i.e. cars and property not owned by you). Of course, factors such as the make and age of your car, your age and driving history can impact the price you pay for this insurance.
Third Party Fire and Theft protects you in a similar way to Third Party Property insurance, but also includes cover for fire and theft-related incidents (up to a certain amount) for your vehicle. In some cases, Third Party Fire and Theft will also provide cover up to a certain amount for damages to your vehicle if you’re involved in an incident with an uninsured driver, where they’re at fault.
Comprehensive car insurance is exactly what it sounds like – comprehensive! It covers you for damage to your car, damage you cause to third parties and any associated property damage. It provides further cover for theft, fire-related damage, flood, storm and hail related damage and potentially a hire car in the event your car has been stolen (all of which depends on your insurer and which policy you hold).
One of the final things insurers may factor into their calculations is whether or not there’s any outstanding finance on your car (i.e. you took out a loan to purchase it).
With so many car insurance options, it’s important to consider your specific requirements and circumstances before comparing policies, to make sure you choose one tailored to your needs. Shop around before you buy and remember – always read the Product Disclosure Statement (PDS), as every policy differs.
1. Australian Bureau of Statistics (July 29 2019) – ‘Motor Vehicle Census, Australia, 31 Jan 2019’ – Accessed November 2019
2. Australian Securities and Investments Commission – ‘Car insurance’ – Accessed November 2019