Your Guide to Car Insurance
Your car is likely to be the second biggest purchase you will make in your lifetime. Whether it is a second-hand Commodore from the government auctions or a brand-new Porsche, it has an intrinsic value in both financial and social terms so it needs to be protected. If it's not, then you could find yourself significantly out of pocket and back on the bus.
In order to protect this valuable new asset, you need insurance. It is one of those things that you hate paying for until you actually need it. But for most people, it is not a case of if you need insurance, but when.
Consequently, buying insurance should an integral part of buying a car. No one would suggest that it is anywhere near as enjoyable, but making sure you get the right sort of insurance to suit your circumstances is just as important as ticking the option boxes to get the most suitable transport.
With a myriad of policies, providers and costs, understanding exactly what you need and what you are getting is vital. So in order that you don't head off into the wilds of contractual obligations totally unarmed, here is a basic guide to the what, where, how and why of car insurance.
Cover you, cover me?
Car insurance basically falls into four categories and it is generally a case of you get what you pay for.
The cheapest and most basic insurance product is third party property which covers you for damage to another car if you are at fault in a crash. In other words, if the brakes aren't what they used to be and your 20 year old Datsun 180B rear-ends a new BMW 7 Series you won't have to fork out thousands of dollars to pay for repairs to the other car. Liability cover for damage to other people's cars or property usually ranges between $5 million and $20 million depending on the underwriter.
Compulsory third party is what you pay as part of your registration fees which covers you against any injury or medical claims if you are at fault in accident. Like it says, this is compulsory and you don't have any choice about paying it.
The next level is third party, fire and theft, which covers you against damage to someone else's car and theft or fire damage for your own car. If you are in a crash, however, you still have to pick up the tab for repairs to your own vehicle.
The top level product is comprehensive insurance. This covers you for damage to another person's car or property, damage to your own car, and theft of your car. Although not a legal requirement, comprehensive insurance is generally compulsory if there is any finance on the vehicle and is the most common form of policy written.
It all sounds fairly simple but with over 100 insurance companies offering comprehensive automotive coverage in Australasia, there is a vast difference in what is covered, conditions of repair and replacement, and extra features not to mention premiums from one policy to the next.
The price?
Once you have decided on what form of insurance is needed, usually the first question people ask is how much does it cost. You may as well ask how long is a piece of string. Costs obviously vary according to the type of insurance but from the insurer's perspective, it really comes down to a number of factors concerning the vehicle itself and your personal circumstances.
How much is it worth?
On the vehicle front, the make, model, age, and accessories determine the value while the insurer's own claims history on that particular car, whether it is used for business or private purposes, financial liability, where it is kept and period of insurance also impact on the premium.
The value of the vehicle is usually determined as either agreed or market. You will generally pay a higher premium for an agreed value policy but if the car is stolen or written off, you know exactly how much you are covered for.
Market value is determined at the time of the loss or crash and varies according to the condition of the vehicle, the mileage and most importantly, market conditions. Its swings and roundabouts, but if the bottom drops out of the used Commodore market you suffer, but at the same time you could find yourself cashing in if there is a sudden surge in demand for late model second-hand Saabs.
History often repeats
The claims history on particular cars is also an important determining factor. If your car is seen as the latest on the wish list for ram raiders or joy riders or the repair parts are known to cost an arm and a leg, then be prepared to pay a premium premium. Some cars have such a bad claims history that underwriters may not even offer to insure them or only if they are fitted with sophisticated alarm and immobiliser systems. Modified cars also present a problem for most insurers as they are deemed to be either more likely to be stolen or crashed and indicative of a high risk driver.
If you are concerned about the cost of insurance on a particular vehicle it is best to find out what you are likely to pay before you buy the car. Some companies provide theft ratings on all new cars that are available to the public by simply phoning its technical advice service. It uses a system of ratings for different features that adds up to a 100 where the higher the score, the lower the risk.
While other companies may use their own claims history which may vary, the ratings provide a good general guide as to the risk of theft of your intended purchase. Desirability in the first place, however, is in the eyes of the thief. Suzuki's little Alto for example, may be one the easiest cars to steal but would anyone really want to. Either way, it is always a good idea to get some insurance quotes before you buy the car just to get an idea.
Are you worth the risk?
On a personal level, the insurer wants to know what sort of a risk you are and take into account your age, sex, driving history and insurance history in premium calculations. Your insurance history is used to calculate the all important no claim bonus.
It is essentially a discount on your annual premium that you get as a reward for being a safe driver and not making any claims. After a year with no at-fault claims you are given a Rating 5 which amounts to a 20 per-cent discount while five years claim free entitles you to a 60 per-cent discount and luminous title of Rating 1.
Once you have achieved this status, most companies will also allow you to protect it either by paying an additional premium or as a free bonus and still allow you to make one at-fault claim a year with out losing your discount. Sort of a bonus bonus but any more claims and your rating and subsequent discount starts to slip.
Age and sex also come into the premium calculations with most companies requiring that you pay an additional excess on any claim if the driver is under 25. Young male drivers are seen as more of a risk so often the excess also varies according to gender.
Have they got you covered?
Shopping for insurance is not a one way street however, and while the companies will assess what sort of risk you and your car might be, you should also be sure that you are getting what you want. Don't be fooled into thinking that price is everything, as with most things, cheapest is not necessarily best. Insurance policies vary dramatically and so it is vitally important that you know what you are being covered for before you sign on the dotted line rather than trying to deal with problems when you have had a crash.
Under a comprehensive policy, the wording from most insurers usually runs something like this: your car is covered for accidental or malicious damage, theft, windscreen and glass damage and hail, storm or flood damage.
This sounds fairly basic but ensure you read the full policy as there are often limits within these factors that may not suit your needs. Some companies for instance, will revoke a no claims bonus for windscreen damage or will not cover you if someone else was driving your car.
Then there are all the extra things that may or may not be covered. Most insurers will cover you for the cost of towing a damaged car to the nearest repairer, but what happens if you are not in the metro area. Here policies vary substantially with some covering up to $1000 for emergency accommodation or travel for you and your car while others leave you to your own devices. There are also varying limits on the value of cover for personal items in the car if it is stolen, damage to a trailer and new for old replacement vehicles.
Getting your car fixed properly is important to you and once again policies vary on who is authorised to do repair work. Most insurers have their own recommended repairers but if you want to use your own you will be required to get at least two quotes and even then there is no guarantee that the insurer will allow you to use your preferred repairer.
Read the Fine Print
While it is important to know exactly what you are covered for it is equally important to know what you are not covered for.
If, at the time of an accident, you were drunk, stoned, driving recklessly, racing or involved in a motor vehicle club event, carrying explosives or more flammable or combustible substances than would normally be used for domestic purposes, your chances of getting the insurance company to pay out are virtually nil.
It is also necessary to inform the insurance company of any modifications or accessories or minor damage as even the most simple thing like using the car for a driver education course or adding window tinting can void the policy. The best way to avoid any potential problems with insurance, is if you are unsure whether the activity will effect your coverage, phone and find out beforehand.
Do you really want to shop till you drop?
With so much variations, how do you know what is best for you and where to get it. There are basically two options for getting your insurance cover: through an underwriter directly or and insurance agent/broker, or one of the growing number of branded insurance policies being sold under the auspices of the car manufacturers.
With the large number of players, shopping around for the right policy at the right price can be a laborious and time consuming task. If you would rather a more personal approach, then an insurance agent or broker like Aussie Car Loans might be a better choice. In these days of longer working hours and less time for leisure, one of the last things you want to be doing is spending days on the phone comparing quotes and conditions or wondering whether you have got the right policy so that is where Aussie Car Loans comes in.
Aussie Car Loans works for you and not the insurance underwriters so they are not tied to selling you a policy from any particular one company.
Julian Cavanagh, Director of Aussie Car Loans, said going through Aussie Car Loans may in some instances cost you a little bit more but you were paying for a complete service.
"We might find that one company might do a good rate on Holdens and Falcons but they are not so good on other types of cars so that's when you have a look around to see who has got the best attitude, the best premium, the best policy wording and the best response when there is a claim," Mr Cavanagh said.
"The type of client that we have doesn't want to have to shop around, they say you go to the different companies and you work out the best deal."
He said using Aussie Car Loans was particularly appropriate for prestige cars or exotic cars as the broker often had more leverage to get a better premium or solve any problems.
"When we develop the scheme we sit down with an underwriter and say this is what we are looking for, and we go through things by negotiation," he said.
Whichever way you decide to go, it is worthwhile shopping around as with so many varied products on offer, the competition is fierce. All it takes is a bit homework, and you can make your insurance work for you rather than being beholden to the underwriter.
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