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Insurance 101: How to Choose the Best Car Insurance Policy

by Guest on September 18, 2014
Lifestyle

While you must have Compulsory Third-Party Insurance in all states and territories of Australia, there are many more insurance options that can provide you with extra coverage. Did you know that there’s a separate insurance coverage entirely for damage to your tyres and rims? Or that Purchase Price Insurance is not the same as GAP Insurance?

Even the safest drivers can experience car troubles, from fires and floods to fender benders, and a well-chosen insurance policy is vital to protect your vehicle from life’s unexpected events.  Read on for everything you need to know about the most common types of Australian car insurance, so you can choose the best car insurance policy for you.

Compulsory Third-Party Insurance (CTP)

This type of insurance is required for every driver in Australia. In fact, you won’t be able to drive out of the car yard without this type of insurance. It exists to cover people for the injuries they may cause to other drivers, passengers and pedestrians. Some states include the CTP premiums in the car registration fees, while in other states you can choose your own provider.

“Even the safest drivers can experience car troubles, from fires and floods to fender benders, and a well-chosen insurance policy is vital to protect your vehicle from life’s unexpected events”

Comprehensive Insurance

There are a wide variety of Comprehensive policies available at different price points, but overall it’s the most – you guessed it – comprehensive option you can choose. If you get a car loan, most financiers will insist on Comprehensive Insurance to best protect your (and their) investment. Comprehensive plans generally include:

  • Crash repairs (whether you’re at fault or not)
  • Replacing or paying you the value of your car if it can’t be repaired
  • Replacing or paying you the value of your car if it’s lost in a fire, flood, or due to theft or vandalism
  • Replacing or paying you the value of any stolen damaged property inside of your car
  • Repairs to other drivers’ cars and other people’s property if you’re at fault

Depending on your plan, you may also be able to arrange additional coverage such as windscreen cover, hire car after an accident, multi-policy discounts, and low-kilometre discounts. There are many options available, and it’s a smart idea to shop around or even use a broker to help you compare options.

Third-Party Property and Third-Party Property, Fire and Theft

Third-Party Property only generally offers a basic level of coverage for you if you cause damage to someone else’s car or property. It is useful if you don’t feel your own vehicle is worth insuring (although be careful about making that decision) but you don’t want the bill if you should happen to hit a Mercedez-Benz.

“… It’s a smart idea to shop around or even use a broker to help you compare options.”

Third-Party Property, Fire and Theft includes the third-party property coverage as well as cover for damage caused to your car caused by fire or theft.

Purchase Price Insurance (PPI)

In extreme cases, your vehicle may be declared a total insurance loss, whether that’s due to theft or a major accident. In this case, there is a chance that there will be a shortfall between the price you paid forthe vehicle and the Comprehensive policy payout. If that happens, you could be left with considerably less money to purchase your replacement vehicle. PPI will pay the difference between the insurance payout and your original purchase price, up to the maximum benefit payable under the option you selected.

GAP Insurance (a.k.a. Motor Equity Insurance)

Many people confuse PPI and GAP Insurance because they both deal with a shortfall following a serious accident or theft, but there is a distinct difference between the two. Unlike PPI, GAP Insurance covers a potential shortfall between your Comprehensive Insurance payout and the payout figure to your financier for your car loan – which isn’t necessarily the same as the purchase price. This gap can occur for a number of reasons, for example when expenses like stamp duty, delivery fees, and registration are included in the loan amount but don’t contribute to the value of the car, or if the value of your car depreciates faster than the payout amount of your loan.

Extended Vehicle Warranty

Most Comprehensive Insurance policies are for “accidental” damage or loss and therefore don’t cover mechanical problems that your vehicle might have – think broken air conditioner, window mechanisms, and electrical systems. If you are thinking of buying a used car, an extended warranty offers great peace of mind and they often come with optional benefits such as emergency assistance, towing, and a hire car.

“Unlike PPI, GAP Insurance covers a potential shortfall between your Comprehensive Insurance payout and the payout figure to your financier for your car loan”

Tyre and Rim Insurance

If you damage your tyres – and the damage isn’t due to an accident – then your comprehensive policy most likely will not cover it. That means that if you run over a nail or suffer a blow-out on the highway, you’ll be out of pocket for the repairs unless you have separate Tyre and Rim Insurance.

Whatever type of insurance policy you choose, be sure to contact your insurer straight away anytime you’re involved in an accident. This will help you get the assistance that you need as soon as possible.
General Advice Warning: The above is provided for information purposes only and does not consider your own personal situation. You should always read the Product Disclosure Statement to determine if these products are right for you.

 

Image credit: Guest post provider, Rob Chaloner.

Rob-Chaloner-profile-image-Leaders-in-HeelsRob Chaloner 
Rob Chaloner is the Founder and Managing Director of stratton, and is passionate about smarter ways to buy and finance cars. With stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.

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