Different types of car insurance explained

What are the different types of car insurance?

There are four main types of car insurance available to Australians (listed in order of most cover to least):

• Comprehensive car insurance is the most extensive (and generally most expensive) form of cover. It provides a more thorough degree of cover for damage or theft to your car, as well as to the property of others during an accident.

• Third party fire and theft insurance provides cover for your car if it’s damaged by fire or stolen, and includes the cover provided by third party property damage insurance.

• Third party property damage covers you if you cause damage to someone else’s property (e.g. their car or home).

• Compulsory Third Party (CTP) insurance is a mandatory form of car insurance that protects you financially if you injure or kill someone in an accident. In the ACT, it’s known as motor accident injuries (MAI) insurance. In NSW, CTP insurance is also known as green slip insurance.

What do different types of car insurance policies cover?

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It can be important to read your policy’s Product Disclosure Statement (PDS) to see if your policy covers you for the above situations.

Comprehensive Insurance

As the name implies, comprehensive car insurance is the most extensive and all-inclusive type of car insurance available in Australia. Comprehensive car insurance provides all the cover that third-party property, fire and theft does, but adds cover for accidental damage to your own car, regardless of who is at fault. It may also provide cover for damage caused by hail. This means generally you’ll be left with less out-of-pocket costs compared to other forms of optional car insurance cover.

Depending on the insurance provider and policy you choose, there is also a range of optional extras you may be able to purchase; including rental vehicles during times when your car is being repaired, roadside assistance, trailer insurance and no-excess windscreen replacement. A comprehensive car insurance policy may also let you choose between the market value or agreed value of your vehicle for your policy, meaning that you could get a say in how much you’ll be paid out in the event that your car is stolen or written off, depending on the policy. This may be particularly useful if you want to insure a vintage or classic car or a vehicle with pricey accessories and modifications. However, your choices may also affect your premiums.

That being said, even comprehensive insurance doesn’t cover everything. It generally won’t cover damage caused by someone else driving your car, unless they are listed on your policy (which could make your car insurance more expensive). It also won’t cover damage which occurred while the driver was over the legal alcohol limit or under the influence of drugs.

Comprehensive car insurance is the most expensive level of car insurance. According to Canstar Research, average annual premiums for comprehensive car insurance can range from less than $1,500 to more than $3,000, depending on how old you are and which state/territory you live in. The larger price tag means that you may want to shop around and compare comprehensive car insurance policies before you buy.

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Third-Party Fire and Theft Insurance

If you don’t want to pay for comprehensive car insurance but want some level of protection for your own car, third-party fire and theft insurance represents a step up from third-party property damage insurance, both in terms of the cover it provides and the cost of that cover.

In addition to covering damage to the property of other road users, third-party, fire and theft insurance also provides a degree of cover for your own car in the event that it’s damaged or lost due to fire or theft. However, like CTP and third-party property damage insurance, it doesn’t provide cover for damage to your own vehicle resulting from a driving accident such as a crash or collision.

Third-Party Property Damage Insurance

This is the most basic level of optional car insurance, and provides you with financial assistance if you cause damage to someone else’s property – for example someone’s car, boat, caravan or home.

It also typically includes liability cover, meaning it will provide financial assistance if you become involved in legal proceedings as a result of the damage caused. This liability cover doesn’t extend to personal injury liability cover, however your mandatory CTP insurance will provide that.

Third party property damage insurance doesn’t cover the cost of any repairs to or replacement of your own car, particularly when you’re at fault for the accident. Exceptions may be possible with some insurers if you’re not at fault for the accident and the other party is uninsured.

Compulsory Third Party (CTP) Insurance

CTP insurance provides protection against claims for financial compensation if you injure or kill someone in a motor vehicle accident. It is considered to be a type of personal injury insurance and as the name indicates, is compulsory for all registered vehicles.

Generally, CTP only provides liability cover in the event of injury or death that you cause while driving. CTP insurance does not insure against the cost of repairs to any vehicles or property, regardless of fault or ownership. This means that whether your car ends up slightly scratched or completely written off after an accident, your CTP insurance will not pay to have the damage repaired.

While being fairly inexpensive, generally speaking, CTP insurance also won’t cover you in the event that you damage a vehicle or other property belonging to someone else.

CTP insurance works in different ways and comes with different conditions in each state and territory. For example, some states/territories require you to purchase your own CTP insurance policy when registering your vehicle, whereas others include it as part of the registration fees where it can be provided by government-owned insurance commissions. CTP insurance is known as Motor Accident Injuries (MAI) insurance in ACT, and covers everybody who is injured in a motor vehicle accident—regardless of who is at fault. CTP insurance is also known as a green slip in NSW. With these variations in mind, you may want to check the specifics of how CTP insurance functions where you live when obtaining your own vehicle.

Explore further: How to check car insurance

Ways to save on car insurance

One of the ways you can save on car insurance is by shopping around for sign-up deals and offers, and comparing policies in order to find one that offers you the right balance of cover and cost. You can also check out our most recent Car Insurance Star Ratings and Awards which compared a wide cross-section of comprehensive car insurance policies from different providers on Canstar’s database, and identified the providers offering 5-Star Value to consumers.

You could also consider opting for a higher car insurance excess in exchange for a lower premium, but it’s important to keep in mind that in the event that you need to make a claim, you would be facing potentially higher out-of-pocket costs.

There are a few other options which could help you save on car insurance, such as paying your premiums annually instead of monthly, maintaining a safe driving record, opting for a low kilometre or pay as you drive car insurance policy and potentially bundling insurance policies for a multi-policy discount.

Explore more: Car insurance deals and offers

When considering different car insurance policies, it’s often worth reading the policy documentation, such as the Product Disclosure Statement (PDS) and Target Market Determination (TMD) to find out what is included as well as excluded from each policy.

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Additional reporting by Nick Whiting

Cover image source: Buravleva/Shutterstock.com