Car insurance - background

On this page, we will review some of the costs associated with car ownership.

Types of insurance.

Insurance is a contract in which one person seeks to indemnify or guarantee another person against a monetary loss of a specified type.

Different types of car (or vehicle) insurance may, for example, cover at least part of:

the cost of damage to a vehicle in an accident;
the cost of losing a vehicle through theft;
the cost of an injury to a person injured in an accident.

There are many types of car insurance which can be taken out.

The main three types and what they cover are:

Type of insurance	What is covered?	What is NOT covered?
Compulsory Third Party - the so called "CTP Green Slip". This type of insurance must be paid for before a person can register a vehicle.	Costs for people who are injured in a road accident including: you; other drivers; passengers in any of the cars involved in the accident; pedestrians. The costs covered could include: medical treatment; lost income.	Damage to your vehicle or to other vehicles or property.
Third Party Car Insurance.	damage to your vehicle if it was inflicted by an uninsured driver; damage caused to other people’s vehicles or property in an accident; towing if your vehicle was driven by an uninsured driver.	Damage to your vehicle if you are driving; damage caused by severe weather events (storm, hail, flood, etc); injuries to you or others;
Comprehensive car insurance. Most companies allow a discount on the cost of a policy if no claim has been made during the previous year - the "No Claim Bonus".	damage to your vehicle; damage to other vehicles if it was your fault; damage caused by severe weather events; towing your vehicle to a repairer or to a safe place after an accident; damage caused by theft, vandalism or in an attempted theft; cost of a hire car if your vehicle is damaged if your car is stolen or damaged in an accident which is not your fault; a replacement with a new similar vehicle if the vehicle is less than two years old. In addition there are various optional benefits if you pay extra.	roadside assistance; hire car running costs (e.g. petrol, tolls, GPS, etc); injuries to you or others.

There are many insurance policies and many companies. Some companies have better reputations than others. The policies offered by different companies vary significantly in costs. Hence when taking out a policy, you need to determine:

what type of policy do you need - knowing the CTP policy is compulsory;
what limits are there in terms of age of the driver;
what limits are there in terms of the extent of the coverage;
what cost can you afford.

What is an EXCESS?

One important condition in Comprehensive policies is the EXCESS. This is the amount that you must claim before the insurance company begins to pay.

You might for example have an excess in your policy of $600:

If an accident inflicts minor damage - say $400 in value - then you pay that amount (anything up to $600) and the Company pays nothing. The inclusion of an excess helps to reduce insurance costs by eliminating minor claims.
If an accident inflicts more extensive damage - say $1,500 in value - then you pay the first $600 and the company pays the balance of $900.

As the amount of agreed excess increases, the cost of the insurance policy - called the premium - decreases. So it is a balance as to what you are prepared to gamble in paying the first costs and what cost are you prepared to pay upfront.

No Claim bonus

A no claim bonus is a reward offered by insurance companies to drivers who have not made claims during a year.

Often the bonus is about 60% in the first year and it can then increase. The no claim bonus generally requires a driver to have a comprehensive car insurance policy.

So if the full price for a policy is $1,500, a no claim bonus offered to a driver who did not claim in the previous year would be 60% × $1,500 and so the cost for the following year would be $900.