The level of insurance you need depends on how flashy your wheels are, how dodgy your driving is and how devastated you'd be if your car was stolen or written off.
If you're not sure which cover you need, we can help you get your head around the types of insurance on offer, the tips and traps when choosing a policy, and how to save money on your premiums.
Compulsory third party
If your car is registered then you already have compulsory third party insurance (CTP, or green slip insurance). It provides essential cover against claims for compensation if you injure or kill someone in a car accident.
- Tip: In all states apart from NSW and Queensland, CTP insurance is provided by only one state-owned or government-licensed insurer. In NSW and Queensland it's offered by a number of insurers and it pays to shop around. For an online price guide go to NSW Government Motor Accidents Authority or phone 1300 137 600 (NSW); Queensland Government Motor Accident Insurance Commission or phone 1300 302 568 (QLD).
- Think CTP is enough? It doesn't cover you for damage caused to other people's property such as you driving into a Ferrari - that's a whole lot of repair bills coming your way.
Third party property
This 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.
- Recommended for: If you're under 25 and driving a 1995 Mazda 121 with a broken tape deck and an Australia shaped coat hanger 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.
Third party property, fire and theft
This also covers you if your car is stolen or burnt. It's a step up from third party, but not as broad as comprehensive insurance.
- Recommended for: This is the car insurance equivalent of an each-way bet. You've upgraded to a 2001 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.
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.
- Recommended for: Anyone who just can't do without four wheels at any time.
Video: How to get the best car insurance
Car insurance tips and traps
Know your excess
- Excesses range from $2675 for an unlisted 23-year-old driver down to $300 for a standard excess in Tasmania.
- Tip! Some insurers discount the age excess for young women.
- Trap! 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.
Look for 'no claims bonus' discounts
- Depending on your insurer, this will be called a no claims bonus or no claims discount (NCD) and that's basically what it is – a discount for not making a claim. The amount of the discount varies depending on the insurer. A 'maximum' rating (which usually means no claims for five years) can save you up to 70%.
- Trap! 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 impact on your premium.
Get a discount for restricting drivers
- Tip! Some companies discount the premium if you restrict the use of your car to nominated drivers or those over a certain age.
- Trap! 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.
Know your discounts
- Tip! 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 to 70 and young drivers who've completed a skilled driver's course may also receive discounts.
- Trap! Insurers don't automatically reward loyalty or make discounts available. You have to ask a company for discounts when shopping for a policy. You should shop around at least every one to 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.
Buying a car?
- Tip! When shopping for a new car, especially 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, for example, because they're more likely to be stolen. This could add hundreds of dollars to your insurance bill each year.
The lazy tax – not changing insurers means higher prices
A significant proportion of us remain loyal to our current insurer – this is a contributing factor in renewal premiums being raised each year.
One-third of the insurers we surveyed said that the premium for renewing your current policy will be higher than the premium for a new customer. This is essentially a lazy tax – 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.
Always check your insurer and at least three other insurers' quotes online before renewing your premium. Only seven out of the 39 insurers we reviewed – 1300Insurance, Budget Direct, Coles Insurance, NRMA Qld, SGIC, SGIO and TIO – 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.
Self insurance – raise your excess
Most insurers allow you to increase your level of excess in exchange for a lower premium. You can think of the excess as the amount for which you are your own insurer. Ask yourself, "How much can I afford to fork out without notice should something go wrong?" If you're able to absorb more than the standard excess, then do it.
Not only does increasing your excess reduce your premium upfront, but it can also protect you against future premium increases.
The majority of insurers we surveyed said your premium could increase, or an unprotected no-claim discount (NCD) could decrease if you make a small claim under $1000. Other claims that can commonly increase your premium are windscreen claims, theft, hailstorm and collisions with an animal.
Even if your NCD is protected, the insurer can increase your premium based on an adjusted risk weighting. About half the insurers in our review said your premium could increase for an at-fault claim, even if you have NCD protection. So if you don't pay for a small repair yourself now, your insurer will likely make you pay for it in future.