Car

How to find the best car insurance policy

Whether you drive a bomb or a sports car, insurance is essential.

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We can help you get your head around the types of car insurance on offer in Australia, the tips and traps when choosing a policy, and how to save money on your premiums.

On this page:

Types of car insurance

This is the best cover option but also the most expensive. It includes the cost of crash repairs or replacing your car, even if you're at fault.

Anyone who just can't do without four wheels at any time.

Most comprehensive car insurance policies cover the same basic events, like:

The differences are in the details. For example, not every policy covers the contents of your car, and even if it does there might be restrictions.

Commonly excluded items are electronics and cash. We've also seen a couple of policies that don't offer cover for stolen belongings.

Another thing to consider is roadside assistance – while car insurance doesn't cover you in the event of a breakdown, insurers may offer roadside assistance programs.

A third big point of difference is contaminated fuel: will your car be covered if it's damaged because you filled up at a petrol station that cut corners?

This provides essential cover against claims for compensation if you injure or kill someone in a car accident.

If your car's registered then you already have compulsory third party insurance (CTP, or green slip insurance).

If you're at fault in an accident, third party property insurance helps to have cover to fix the other person's car (unlike CTP, which doesn't cover you for damage to other people's property). 

Third party property cover is the least expensive option after CTP. It covers you for the damage you may cause to another car and may include limited cover for damage caused to your car by an uninsured driver.

If you're under 25 and driving a 2002 Mazda 121 with a broken tape deck, then this is probably the policy for you. Insure everyone else's car instead of your own. The money you save on premiums will have you driving something better much sooner.

This also covers you if your car is stolen or burnt. It's a step up from third party property, but not as broad as comprehensive insurance.

This is the car insurance equivalent of an each-way bet. You've upgraded to a 2010 Holden Berlina with a broken CD player that you tend to park in dark alleys so you're worried about it getting stolen, but you still can't justify paying for comprehensive premiums.

What level of car insurance do you need?

Ultimately it comes down to how much your car is worth and how much it would hurt to go without your car if you ever wrote it off in an at-fault accident.

Comprehensive policies cover your car even if you're at fault. Some insurers even give you the option to add bells and whistles to your policy, such as  car hire if you write your vehicle off in an accident where you're at fault.

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No one wants to be caught underinsured, but if you're paying more than 20% or even just 10% of the car's value every year in premiums, you might want to consider if a cheaper policy would be better value for money. 

Third party property covers the basics  – no one wants to be stuck paying for someone else's repair bill.

Third party property with fire and theft will cover your vehicle for a couple of calamities as well.

If your car's market value is low, you might want to consider a cheaper type of policy.

Agreed value and market value: what's the difference?

For drivers with comprehensive or fire and theft policies, the amount your insurer will pay if you write off your car depends on your agreed value or market value.

This is when you insure your car for a specific amount (within a range set by the insurer). 

If your car is a total loss (i.e. written off or stolen), the insurer will pay you this amount, less the excess. 

If your car is under finance, consider insuring it for an agreed value that's at least equal to the amount remaining on the loan. That way, if you have a total loss you'll be able to square away the debt before looking for a new car.

This is when you insure your car for what its value is at the time of an accident.

Selecting this option reduces your premium, but it gives you less certainty about the value of your payout in the event of a loss. 

Read more: CHOICE survey: RAA car insurance in top spot for customer experience

Insurance tips, discounts and traps

An excess is the amount you pay to make a claim. The higher your excess, the lower your premium.

Increasing your excess can save you money, but be wary of a really high excess – it won't be worth your while to make a smaller claim.

Every insurer has a name for this: no claims discount (NCD), safe driver bonus, the list goes on. Essentially it's a discount for not making a claim. The amount of the discount varies depending on the insurer, but a 'maximum' rating (which usually means no at fault claims for five years) can save you up to 70%.

You can often pay extra to protect your NCD, meaning if you do have an accident, it won't affect your rating. But if you have a protected no claim bonus, don't assume an 'at fault' claim won't have an impact on your premium. Some insurers increase your premium regardless. Even a 'no fault' claim such as hail damage can affect your premium.

Some insurers let you pay extra to protect your no claims discount, so your rating won't be affected if you do have an accident. 

Some companies discount the premium if you restrict the use of your car to nominated drivers or those over a certain age.

If you take this up you shouldn't let an excluded person drive – if they have an accident, it's you who'll pay a high additional excess or you may not be covered at all.

Discounts may be available if you have other policies with the same company, have an approved engine immobiliser or alarm installed in your car, or take out insurance online. Long-term customers, pensioners, people aged 50–70 and young drivers who've completed a skilled driver's course may also receive discounts.

But some discounts only last for your first policy year – they're just there to get you through the door, and you'll be stung with a steep increase in a year's time.

Insurers don't automatically reward loyalty or make discounts available. You may have to ask a company for discounts when shopping for a policy. 

Some insurers will give you a discount for insuring more than one vehicle, or if you insure your home through them. This can be a good way to shave some dollars off your premium, but don't let that be the deciding factor in your purchase.

If you're trying to decide between different models, it's worth checking out what the insurance would be on each. Some models attract a much higher premium because they're more likely to be stolen, for example. This could add hundreds of dollars to your insurance bill each year. Even the colour of the car can affect your premium.

Read more: Does car insurance cover your kids to drive?

Avoiding the 'loyalty penalty' from insurers

A lot of people remain loyal to their current insurer, which is a contributing factor in renewal premiums being raised each year.

Insurers can and do increase premiums more for renewing customers than for new customers. This is essentially a 'loyalty penalty' – the price we pay for the reluctance to switch.

Several insurers attribute the premium difference to the online discount, which is available to new customers but not to renewals sent to existing customers. 

Insurers can and do increase premiums more for renewing customer than for new customers

You should shop around at least every one or two years to make sure you get the best deal. We've heard from members who got an online quote from their own insurer and found that it was cheaper than their renewal slip.

Always check your insurer and at least three other insurers' quotes online before renewing your premium. 

Several insurers in our car insurance comparison said they'd match or beat competitors' quotes, usually as part of a campaign.

If you show more of a willingness to switch, then insurers will have to recognise this in their premiums or risk losing business to their competitors.

Read more: 'Insurtech' uses your data to tailor your insurance policy

Stock images: Getty, unless otherwise stated.

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We at CHOICE acknowledge the traditional custodians of this land on which we work, and pay our respects to the First Nations people of this country. CHOICE supports the First Nations people's Uluru Statement from the Heart.

ACA Insight Pty Ltd (AFSL 550139) (ACA Insight), owned by CHOICE, provides any general advice on general insurance products on this page. This advice does not take into account your objectives, financial situation or needs. Consider the appropriateness of the advice before acting on it. Read the Product Disclosure Statement relating to any insurance product before making a decision to buy it.