Car insurance
Please note that this article is not written by a qualified
or licenced financial planner so it should not be treated as professional
advice. When it comes to matters such as insurance, it is recommended that you
speak to a financial professional before making any decisions.
Although slightly off our usual topics, I figured it would
be a good idea to put together an article related to car insurance as it
relates to Australian car owners. It is a topic often sidestepped by many as it
is seen as quite a pain and most people know someone (if not themselves) who
has had issues dealing with insurance companies in the past.
When dealing with car insurance, it is important to know exactly
what you are paying for. It can often be tricky to know exactly what you are
getting. This article hopes to dispel some of that. Of equal importance is what
you are not paying for.
If done correctly, car insurance makes a great safety net
which can get you out of trouble on a rainy day and provide peace of mind. If
done incorrectly, it can be a real headache and could cost you dearly.
There are many different companies offering what seems to be
many different kinds of insurance policies, but at the end of the day, there
are 4 main types of car insurance available to private buyers in Australia
1/ Compulsory third party, or CTP.
As implied by the name, CTP is compulsory and must be held
by anyone who owns a registered car in Australia. CTP is the most basic level
of car insurance cover. It covers death or injury that happens to anyone
involved in a car accident. It does NOT cover damage to any vehicles or any
property.
2/ Third party property
Third party property insurance would be purchased in
addition to Compulsory Third Party (CTP) insurance. As the name implies, third
party insurance covers the property (up to an agreed value) owned by others
that you damage if you are found to be at fault. It is generally recognised
that this should be the minimum cover you should have. What it does not cover
however, is any damage to your car if you are found to be the party at fault.
3/ Third party fire and theft
This insurance is a step up from third party property. It
covers everything the previous 2 types cover, plus any damage to your own car,
provided it was caused by fire or theft. It does not cover any accident damage
done as a result of an at fault accident. Make sure you read the policy as many
Third Party Fire and Theft policies do not cover contents stolen from a car
that were not part of the car (ie: wallet, phone).
4/ Comprehensive
As the name implies as well, comprehensive insurance can
cover your vehicle regardless of who was at fault as well as any damage done to
anyone else’s property and death or injury. This is generally seen as the top
level of cover for car insurance in Australia.
On top of the 4 main types of insurance, insurers may choose
to offer add-ons such as free hire car when your car is getting repaired, your
choice of repairer etc etc. Have a close look and see if what is being offered
is worth the extra money you are paying
There are also a few other terms you will need to be
familiar with in order to navigate this maze:
Policy:
Policy is basically the insurance contract. The policy
holder, is the one who pays the premium for it. In very simplified terms the
contract states that the policy holder will pay a certain amount for the policy
and if certain conditions occur, then the policy holder will be paid out a
previously stated sum, which will be either an agreed value or market value
Premium:
Premium is basically what you have to pay in order to hold
the policy. Nowadays most insurance companies price their premiums using online
algorithms based on information you submit to them when applying for the
policy. A few examples of information they will ask will be:
- Age of youngest driver
- Gender of policy holder
- How much the car will be driven
- Where the car will be stored at night
- The value of the car being insured
- The make and model of the car
- The level of cover
- Questions relating to driving history
Based on your answer to their questions they will work out a
premium. As I’m sure you have noticed, you could play around with the answers
to these questions to give yourself a more favourable premium. As tempting as
this is, do not do it. If you are found to have been dishonest (ie: manipulated
the algorithm) it becomes viable ground for the insurance company to void the
contract completely. Make sure you answer these questions truthfully, even if
it costs you a couple more dollars upfront.
Most companies will also give you the option to pay the full
amount upfront or make weekly or monthly repayments. If you can pay the full
amount upfront, it will usually save you a bit of money.
Agreed or market value
When filling out the form to get your premium, some insurers
will give you the option to value your car in 1 of 2 ways. Either as agreed
value or at market value.
With agreed value, the insurance value of your car is
determined when the policy is started. You will know for the whole length of
the policy what your car is insured for.
With market value, this figure is taken from a number of
factors including recent sale prices of similar cars.
It is up to you to choose which of these 2 options works
best for you. From personal experience, I have found the ‘agreed value’ to be a
little on the low side for many of the policies I have taken out. The upside is
that is has been agreed on upfront and there is the certainty of knowing how
much the car is insured for. With market value it can be a bit of a wildcard as
to what the value of the car will be should you ever have to make a claim.
Excess
In the contract there will be a thing called excess. Excess
is the amount you will have to pay in order to make your claim. You will only
have to pay excess when making a claim against the insurance policy. Excess can
usually be anywhere from about $500 and up. It works like this: If you had a
policy where the excess was $500 and you were involved in an at fault accident,
you would have to pay the excess (in this case $500), and the insurance company
would cover the rest of the costs.
Generally speaking, excess and premium often act together in
insurance policies. If you opt for a lower excess, your premium will generally
be higher. If you opt for a higher excess amount, you can usually expect to see
your premium drop.
In an ideal world you wont be making a claim so you would
set the excess figure quite high in order to pay a reduced premium, however it
does not always go like this.
A few extra tips:
Always keep your insurance paperwork handy. Do not throw it
out when it comes in the mail. It is a good idea to keep this in the glove box
of your car.
Make sure you get it all in writing. From time to time there
may be reasons for your policy to change. You might switch to a new bank so
they have to now take money from a different account each month, you might
upgrade to a newer car and have to tweak your policy. Anytime there are any
changes, regardless of how small, make sure you get it in writing from the
insurance company. I don’t believe they are being deceptive, but when you speak
with someone over the phone, it could be going to a call centre overseas and
not be followed up on, leading to a miscommunication that could cost you your
cover. Get everything in writing mailed to you.
Don’t be afraid to shop around for a better deal. Don’t just
take the first offer. Don’t just automatically renew your old policy. Jump
online, fill out some forms and compare what you are getting for your cover.
Most insurance companies use a very similar set of algorithms so the prices
might not vary too much but it would still be worth investigating. Even better,
jump on the phone to them and talk to someone. Believe it or not, insurance
companies are keen for your business, if you have them on the phone they may be
willing to give you a better deal than what is being shown online. They may
rather sign you up at a discount than risk losing you altogether. Just see the
above point though, get it in writing.
Be truthful about the information you give. When filling out
forms that are asking for information, tell the truth. Lying on these forms can
allow the insurance policy to cancel your policy. It might cost you a bit more
on your premium but it would be much better than having the policy cancelled on
you when you go to make a claim because you lied about your driving history.
In the event of an accident, do the right thing. Although
this kind of goes without saying, make sure you get the details of all other
parties involved and take photos of the scene from all angles. Report the
incident to the correct authorities and notify insurance companies asap. A dash
cam can be a good investment if you can afford one.
Know what cover you are after before you start searching.
This will save you a lot of time and legwork if you get this sorted up front.
Read the fine print. Although most of these policies are
quite standard, take the time to read through the fine print of the contract
and understand what you are and are not covered for. If you are unsure, ask.
The subject of car insurance can be daunting to some. If
this is you, the best thing you can do is get informed. Learn the jargon, know
the types of insurance, what they cover and don’t be afraid to shop around and
ask questions.
