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KEY POINTS
- Comprehensive car insurance offers the most thorough insurance cover for your vehicle, but tends to cost more in premiums.
- You may find that it’s not worth paying the higher cost of comprehensive car insurance premiums in some cases, such as when you drive an older used car.
- Comprehensive car cover can be important if you need a car for family or work, or if it’s a condition of your car loan.
What is comprehensive car insurance?
Comprehensive car insurance is a policy that offers some of the most thorough coverage for your car. It covers damage to your own car and those of third parties in the event of an accident, as well as if your car is stolen, catches on fire, or is caught up in other misadventures, including some natural disasters.
Because comprehensive car insurance offers the most cover, it tends to have a higher price tag than other types of car insurance, such as Compulsory Third Party (CTP), Third Party Property Damage, and Third Party Fire and Theft.
While a comprehensive car insurance policy can offer plenty of coverage, it may not always be the best option for every Australian, as everyone’s financial situation is different.
What type of car insurance do you need?
The only car insurance that is essential for every Australian driver is Compulsory Third Party (CTP) insurance. This policy covers your liability for any injuries to other motorists or pedestrians in a road accident where you’re at fault. CTP is often included as part of the car’s registration, though in some states and territories you’ll need to organise your own CTP cover and select your own insurer.
Third party Property Damage, Third Party Fire and Theft, and Comprehensive car insurance are all optional for motorists. Generally, the more cover an insurance policy offers, the more it may cost you in premiums and excess.
Is comprehensive car insurance worth the cost?
To work out whether comprehensive car insurance is worth the premiums you would pay, consider asking yourself the following questions:
How much is your car worth today?
Most cars depreciate over time, losing value as they get older, travel longer distances, and accumulate wear and tear. Your car’s current value may affect both the premiums you pay, and the benefits you receive from a comprehensive car insurance policy.
If your car is insured for its market value, the maximum amount of money your insurer may pay out would be based on the estimated cost to buy a vehicle of the same age and mileage. This should allow you to replace your vehicle if it is written off in an accident or other insured event.
You can choose to base your comprehensive car insurance policy on an agreed value for your vehicle. Setting a higher amount can mean a bigger payout if your car is written off, though your premiums may be higher. And lowering your agreed amount may be able to help make your insurance premiums cheaper, though you risk finding yourself underinsured when you need it most.
In some cases, you may find that your car’s value means it’s not worth paying the generally higher premiums for a comprehensive car insurance policy. For example, if you drive an older used car with a significant number of kilometres on the odometer, its market value may be so low that it may actually cost more to insure it for a few years than it cost to buy.
Could you afford to replace your car if something happened?
If your car is essential for your lifestyle and/or your job, you may find that a comprehensive car insurance policy is worth the extra cost. If your car is written off, the payout from your insurer should be able to significantly contribute to organising a replacement vehicle.
But if being left without a car for some time has less impact on daily activities (for example, you live in an area with plentiful public transport, or use your vehicle infrequently), the ability to quickly replace your car may be less important to you. And if you drive a relatively low-value older used car, you may even be in a financial position to replace it without help from an insurer.
Are you still making repayments on your car loan?
Some banks and other car loan financiers require that your vehicle holds a comprehensive car insurance policy as part of the loan’s terms and conditions. This is to help manage the lender’s risk – even if your car is damaged or written off, the insurer should be able to repair or replace the asset that’s securing your car loan. This means the lender can be more confident that it won’t end up out of pocket if you were to default on your repayments, as there would still be an asset available that it could repossess and sell if necessary.
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