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 | Choosing a car insurance policy |
Most people only read their policy from cover to cover when they need to make a claim. Unfortunately, by this time it's often too late.
In 60% of cases involving disputes over unpaid claims during 1999, consumers did not have the insurance they thought they did. Make sure you know up front what to expect from your policy. Here's what to look out for so you get the cover you need:
What kind of cover do you want?
What won't the policy cover?
Other things to think about
Warren's story: a 20 year old chooses car insurance
What kind of cover do you want?
There are three common types of car insurance policies:
| Comprehensive insurance | This covers damage to your own car and damage to other people's property if your car has been involved in an accident, and the driver of your car is covered under your policy. |
Third party property insurance* |
This covers damage caused by your car to other people's property. It does not cover the cost of repairs to your own car. |
Third party fire and theft insurance* |
This covers damage caused by your car to other people's property, and limited cover for loss or damage to your car, against theft or fire only. |
*These third party insurances are all optional. They are different from the third party insurance you pay when your car is registered (which covers injuries to people in car accidents).
Your car will either be insured for an agreed value (stated in the policy) or for the market value of that make and model of car, based on the going rate for that type of car and the condition of your particular car.
What won't the policy cover?
Generally, policies are similar in the way they describe the events covered by the policy. The differences are in what the policy doesn't cover.
Most policies do not cover loss or damage resulting from:
- mechanical, structural or electrical failure
- depreciation, wear and tear, and rust
- the cost of repairing faulty or burst tyres (although other damage from any resulting accident will be covered)
- lost wages or income because you cannot use your car
- unauthorised modifications to the car from the maker's specifications.
Also, most policies will not cover loss or damage if you drove your car when it was in an unroadworthy or unsafe condition, and this contributed to the accident, and you knew, or should reasonably have known, that the car was not roadworthy.
TIP! Comprehensive insurance is meant to cover the cost of repairs from motor vehicle accidents, fire or theft - not to replace parts that stop working because of age or some inherent fault. Read the policy carefully to make sure your expectations of the cover match what the policy says.
Other things to think about
How does the driver of the car affect the policy?
Does the policy offer any extras?
What about insurance as part of a car loan?
How does the driver of the car affect the policy?
The person who is driving the car can affect:
- the premium you pay for car insurance and
- whether the insurer will pay for damage if there's an accident.
Your driving record
Insurers give you a rating from 1 to 6 according to your driving history (with a rating of 6 the lowest). Your insurance will cost less as your rating improves. If you are changing insurers, make sure that your new insurer gives you the same or an improved rating as your previous insurer (or else explains why it will not).
Understandably, most companies assume they are insuring "John" or "Jane Smith", rather than a Formula One race car driver. If you are planning any "unusual" activities involving your car, be aware that policies will not cover damage if you:
- are driving in a race or competition
- intentionally damage your own car.
Other drivers
You should be aware of restrictions on your cover if you let someone else drive your car. Insurance policies will not cover damage if you let someone drive the car who was:
- intoxicated or under the influence of drugs
- an unlicensed driver
- not authorised under the policy to drive the car
Does the policy offer any extras?
Many car policies provide additional benefits such as:
Third
party extended cover | Some third party fire and theft policies will cover damage to your car, whether the damage was caused by you or by another person. This coverage is usually limited to a particular amount, such as $3,000. Policies do vary, so it is worth shopping around. |
Uninsured motorist extension |
Third party property policies do not cover damage to your car. However, some policies will cover damage to your car up to a limited amount (usually $5,000) if you were not at fault in the accident and the other driver was uninsured. This extension can be a cheap way of obtaining some insurance for damage to your car if you cannot afford comprehensive insurance. These policies limit cover to situations where you can identify the other party who caused the damage to your car (so that the insurer can be sure that you did not cause the damage yourself). |
Rating 1 protection |
You pay an additional premium to protect your Rating 1 status even if the accident was your fault. |
Some policies also cover: towing costs and free car hire.
What about insurance as part of a car loan?
Sometimes insurance policies are sold as part of a package with a car loan. In this situation, you deal with an agent (such as a car dealer) rather than the insurer. With your car loan, you may be offered Comprehensive insurance and/or:
| Gap (or security shortfall) insurance* | If the car is a write-off, this insurance pays the balance of the loan after the comprehensive insurer makes a payment to the credit provider. |
Mechanical breakdown insurance* |
This insurance pays for the cost of some types of mechanical problems with your car. |
Consumer credit insurance* |
This insurance meets some of the payments under the loan if you become unemployed, sick or die. Read FIDO's answers to 5 common questions about consumer credit insurance |
*These types of insurance are all optional. Only buy them if you want this kind of cover - don't be pressured into buying insurance you don't need!
TIP! Before you take out insurance with your loan, be sure that you are getting the best deal. Keep these points in mind:
| 1. | The agent should be the authorised representative of an Australian financial services (AFS) licence holder. Check now |
| 2. | The agent gets a commission from the sale, which might lead to them selling you expensive or inappropriate insurance. This commission must be disclosed to you. |
| 3. | Most car dealers have an arrangement with one particular insurer only, so they do not shop around for the best price for you. |
| 4. | With comprehensive insurance, some car dealers do not ask about your rating with previous insurers. They may automatically list you as Rating 6 (the "highest risk" rating). This may mean you have to pay a higher premium than with your previous insurer where you may have built up a better rating. |
| 5. | You will be paying interest on your insurance premium, making it more expensive. If you don't have the cash to pay for comprehensive insurance in one go, you will find that many insurers now offer policies where you can pay month by month. |
Warren's story: a 20 year old chooses car insurance
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