How is car insurance calculated in 2025?

How are car insurance premiums calculated?

As with any general insurance policy, the premiums you pay are calculated based on a group of general and risk factors, as well as how likely you are to make a claim. Generally speaking, the lower your overall risk as a driver, the lower your car insurance premiums will be. Your premium typically also includes any relevant local state or territory government stamp duties and levies, as well as the Goods and Services Tax (GST).

What factors impact your car insurance premium?

The factors that could impact the cost of your car insurance premiums are:

Your age

Young drivers—such as those under the age of 25—are often seen as riskier to insure, due to their lack of driving experience. The same could be said for learner drivers and those holding a provisional licence. These groups of drivers may pay higher premiums as a result.

Your driving history

If you maintain a safe driving record with minimal or no claims made, you could potentially see a reduction in your overall car insurance premium. This is due to you being perceived as less likely to make a claim. Some car insurance providers also offer safe driver discounts or no claim bonuses to drivers who rarely make claims.

How often you drive

Some car insurance providers offer premiums at a discounted rate for low-kilometre drivers, which may benefit people who live in the inner city, don’t use their cars often or who have retired. Another option would be a pay as you drive car insurance policy, which functions in a similar way. Those who use their car for business purposes, however, may attract a higher premium if they use their vehicle more often.

Where you live and park your vehicle

Your premium may be impacted by the state or territory you reside in, as well as the suburb you live in. Suburbs with higher theft rates may see higher premiums as a result.

Where you choose to park your car overnight may also play a part in determining your premium. Parking your vehicle on the side of the road may lead to more costly premiums as opposed to parking in a secure location, like a garage that can be locked.

The vehicle itself

The details of the vehicle that you are insuring, such as its make, model and age, could influence the cost of your premiums. A high priced vehicle that is costly to repair or replace will be more expensive to insure compared to an older vehicle with readily available parts. If your car has modifications like alloy wheels, custom paint or a spoiler, it could also be more expensive to insure.

The type of car insurance policy

All cars must have Compulsory Third Party (CTP) insurance to be able to legally drive on Australian roads. CTP is also referred to as Green Slip insurance in NSW and Motor Accident Injuries (MAI) insurance in the ACT. This form of mandatory car insurance covers your legal liability if you cause injury or death to another person in a road accident. CTP is generally paid for at the same time as car registration and you may have a choice of who provides this insurance depending on the state or territory you live in.

As far as optional car insurance, there are three different types:

• Third party property damage—provides coverage for accidental damage caused by your car to someone else’s car or property.

• Third party fire and theft—provides the same coverage as third party property damage, as well as cover for your own vehicle in the event of fire or theft.

• Comprehensive car insurance—is the highest level of optional car insurance and provides the same coverage as third party fire and theft, as well as cover for damage caused to your vehicle in an accident regardless of who was at fault.

While comprehensive car insurance is the most extensive form of cover, it will often come with a higher premium than optional third party car insurance. Choosing which level of car insurance is right for you will depend on your needs and circumstances.

The policy’s excess

A car insurance excess is an amount that you agree to pay in the event that you need to make a claim. This amount can either be paid upfront or taken out of the lump sum provided to you after a claim has been approved. Choosing a higher excess will usually result in a lower premium, however, it’s important to note that in the event of a claim you would need to pay this higher excess, potentially upfront.

Market value vs agreed value

Most car insurance policies will value your vehicle at its market value (what the car would sell for on the open market) when processing a claim. The market value will typically depreciate over time as the vehicle gets older. This may not be beneficial if your vehicle is a classic or vintage car or has modifications and accessories attached—as these will typically not be included in the market value unless otherwise stated in the policy.

For those looking to insure their car for a specific amount, an agreed value policy may be more suitable. That being said, these types of policies generally come with higher premiums and you would need to come to an agreement with your insurer on the vehicle’s value.

Optional extras

Many car insurance policies come with optional extras that can be added to a policy at an additional cost. Adding extras like windscreen cover, roadside assistance, rental car hire and trailer insurance to your policy would increase the cost of your premiums. It is, however, important to consider whether these extra forms of cover would cost more when bought separately as opposed to buying them as optional extras.

Check out the Product Disclosure Statement (PDS), Target Market Determination (TMD) and other relevant policy documentation for any policy you are considering for more information.

How to save money on your car insurance

There are several things you could consider doing which could help you save money on your car insurance premiums:

• Car insurance providers often have deals and discounts that apply to new car insurance policies. If you are looking for a new policy or to switch from your current one, this may be an added incentive

• Some providers offer premiums at a discounted rate if you choose to pay for them annually rather than monthly

• Driving safely and avoiding making claims where possible could lead to lower premiums, as well as safe driver discounts or no claim bonuses (if your provider offers them)

• Driving less could lead to lower premiums, especially if you were to take out a low kilometre or pay as you drive policy

• Consider insuring your car for its market value, rather than for an agreed value

• If you have multiple insurance policies with the same provider, you may be able to bundle the policies and receive a multi-policy discount

• Increasing your claim excess will usually result in lower premiums. It’s important to remember though, if you need to make a claim, you could face higher out of pocket costs if you have a high excess amount

• Shopping around and comparing different car insurance policies and their providers, could help you to find a policy with a better premium, as well as one that suits your needs. You can compare car insurance with Canstar

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