Cars
Car insurance
Introduction
Shopping around for the best car insurance deal is still worthwhile.
Our regular update has once again shown a huge variance in premiums. The best and worst quotes for our 7 consumer profiles found differences of hundreds of dollars – especially for young drivers.
For younger drivers we've also surveyed third-party policies, which are considerably cheaper than comprehensive policies.
Key decisions
Agreed value or market value?
One of the biggest questions when you shop for car insurance is what value to place on your car. Many members have told us they don't find the companies helpful here. There are two options: market value (indemnity insurance) or agreed value.
Market value (indemnity)
Some car-insurance polices are indemnity policies, which means that if a vehicle is written off the insurer will only pay out on the current market value of the vehicle. This would be assessed at the time of the loss, using a pre-accident valuation that is carried out by a registered motor vehicle dealer. You can have a nasty surprise if the valuation is substantially less than what the vehicle is insured for (and the amount your premium is covering), unless you have an agreed value policy.
It works the other way round too. If your vehicle is insured for more than its market value, then you may be paying too much in premiums.
When you renew your policy make sure that the value of your car is decreased accordingly. This may mean some extra work for you (if you have to get a valuation) but it could save you money.
Agreed value
Most insurers now provide this type of policy, but you may have to ask for it. When you take out the policy, you agree with the insurance company on what you think the car is worth (agreed value). This means you know the amount you'll be paid out if the vehicle is written off.
Your insurer should continue to review the value and suggest an amended agreed value at each policy renewal. You can choose to accept the new valuation or ask to have it changed.
An agreed value policy can work in your favour. Say your car is insured for $3,000 agreed value, but is really only worth $2000 in today's market. In the event of a total loss, you would be paid the full $3000 (but you would have been paying a higher premium based on this value).
Choose the right excess
The excess is the amount of each claim which you have to pay yourself. The standard excess for drivers over 25 is $300 to $400 with most companies.
It really hurts the wallet if young or inexperienced drivers make a claim. Several companies’ standard excesses vary from $300 for the over-25s to more than $750 for younger drivers. And most companies have additional excesses for inexperienced drivers as well as for those on learner and restricted licences, which can add up to $1500 to the standard excess.
Tip: Shop around. Make sure you check the companies’ policies: the companies with the cheapest premiums don’t always have the lowest excesses. Some companies allow you to pay a voluntary (higher) excess that will lower your premium.
Ways to save
- Shop around. Get at least two or three quotes.
- Make sure you're not over-insured.
- Negotiate! We continue to hear reports from members who've reached a better deal by good old-fashioned haggling. If you want to stay with your insurer but find cheaper quotes elsewhere, ask your insurer to match them.
How insurers set premiums
Insurance companies calculate their premiums from information about the general population. This means they initially charge a "general" premium based on statistical factors such as age, sex, vehicle storage, location, and vehicle make and model. They are allowed by law to discriminate on the basis of age and gender because they have the statistical evidence to back up their claims that certain groups - younger male drivers, in particular - are a higher risk for them.
But once the insurance company has built up a history with you, it's able to offer a premium that reflects your specific risk-profile as well as no-claims or other discounts.
Discounts
Make sure you get all the discounts you're eligible for.
No-claims discounts
Depending on how many years you've gone without making a claim, a no-claims discount could reduce your premium by 50 percent or even as much as 66 percent. (Discounts don't apply to the government levies attached to premiums.)
Higher excess discounts
Taking a higher optional excess - that part of the repair bill which you pay yourself - can result in discounts on your premium of a similar proportion. Check if your company offers this. Some companies have a minimum premium, and discounts can't be used to drop a premium below this level.
Age-related discounts
Discounts are often available for older drivers (usually those aged over 55 or 60), and some companies offer policies exclusively to people over a certain age. You can also do this the other way: agree that you won't let anyone under 25 drive your car, and that too can give you a lower premium.
Other discounts
Take out home and contents insurance along with the car cover, and you can get a package discount from many companies - up to 20 percent in some cases.
Companies offer other discounts like driving a hybrid car and driving under 5,000km in a year, so it pays to check what you are entitled to.
Not all companies offer all discounts. But it is worth asking if you get a discount for keeping your car in a locked garage, and for always using a professionally installed alarm or engine immobiliser.
You can also save money by paying your premium annually rather than monthly. Most companies will lift your premium by as much as 10 percent if you pay monthly.
Online quotes
Online quotes usually provide only a rough estimate of premium charges. One company recommends you check that the details for your online quote reflect your personal and car details. If you think it’s difficult to provide accurate information online, then talk to insurers so they can provide a quote that’s tailored to you and your vehicle.
Insurance traps
Modifications
Insurance may be hard to find or significantly more expensive for a performance-modified vehicle. The standard definition of a "modification" is any accessory or modification to a vehicle that differs from the car manufacturer's standard specifications for the model and year of manufacture.
Some insurers may interpret any modification as a sign that you are a boy-racer, even if the modification has no effect on safety. We've heard of one example where a customer was told that even a "fancy gear knob" would render his car uninsurable.
We've found that insurers' views on modifications can be related to age, risk and claims history. We know of one case where a 40-something male has no problems insuring his performance-modified Range Rover.
Disclosure is particularly important when it comes to modifications. You must tell your insurer about any vehicle modifications when you're taking out your insurance policy. If you don't, the policy may well be void. And this isn't just about deliberately withholding information. Even if you forget to tell the company something, you may find your insurance useless when you need it most.
Be careful when buying a Japanese imported car, because the car may have been modified. You might have a vehicle that meets the definition of a modified car even if you didn't alter it yourself.
Savings traps to be wary of
Having no insurance is a false economy. You need protection against the disaster of your car hitting an expensive vehicle. If comprehensive cover is too expensive for your cheap car, go for third party, fire and theft cover. You're covered if you prang another car (and the other driver wants you to pay up), or if your car is stolen or burnt out.
The second trap is saving money by insuring a car in your name when one of your children is the main driver. If the company finds out, they can cancel the cover.
How to lose your insurance
Companies will regard any breaches of your policy as a reason to void your insurance cover.
Breaking the law
Driving under the influence of illegal drugs or alcohol is a sure-fire way to void your insurance policy if you have an accident that can be attributed to your intoxication. This does not apply to prescription drugs, unless they carry a clear warning not to drive.
It also may not apply if your intoxication is not the cause of the accident. That is, if you were legally parked and sleeping it off in the back when someone ran into your parked car.
Advise your insurance company of any speeding fines. A one-off minor speeding ticket would not usually affect your policy, but more serious offences could result in an increase in excess or exclusion from your policy.
Breaching the terms of your licence or driving while disqualified may also void your insurance policy, but only if breaching your licence actually caused the damage you're claiming.
Being careless
Not taking adequate care to secure your car against theft can also mean your claim is turned down. This can range from leaving your car unlocked with your keys in the ignition, to leaving expensive items like a laptop visible inside a locked car.