What Does Car Insurance Actually Cover?
Upon buying a brand-new vehicle, you’ll probably be billed a few hundred dollars on insurance fees. In places like the United Kingdom and Australia, car insurance is mandatory for vehicle owners.
But have you really stopped to think about what car insurance really covers? If not, then this article can be a great refresher to get you up to speed.
Car insurance is a type of policy that financially covers the expenses associated with damages made when you’re driving a car.
The bare minimum insurance policy requirement for UK and Australia-based drivers is third-party insurance. This is called compulsory third-party (CTP) insurance in Australia.
This is a type of insurance that covers liability for personal injury when you’ve caused an accident while driving.
With compulsory car insurance, you won’t be covered in the event of damages to your car or your passengers. However, some types of insurance features may allow more comprehensive coverage options through add-ons and the like.
Let’s break down all the important information there is to know about car insurance and clear out once and for all its coverage.
Let’s start!
What are the Main Types of Car Insurance?
It’s important to be able to distinguish the different car insurance types to know the extent of your financial protection. Getting into an accident without having adequate financial protection can be a massive drain on your finances.
The one-two punch of continuously paying for insufficient insurance and financially recovering from a vehicle accident out of pocket can be devastating, to say the least.
This is why it’s important to familiarise yourself with your car insurance plan and know what it covers (and for how long) in its entirety.
In places like Australia, there are three main types of car insurance: compulsory third-party insurance, third-party insurance, and comprehensive insurance.
1. Compulsory Third Party Insurance
Compulsory third-party insurance (or CTP insurance, for short) is mandatory car insurance meant to cover personal liability costs if you injure other road users.
This insurance type provides a payout to injured third parties for medical and legal fees. This includes ongoing care, medical expenses, and rehabilitation expenses.
This coverage is mandatory for car owners across all states in Australia. CTP policies can differ from state to state, and even from insurer to insurer. It’s called a Green Slip in New South Wales.
This is why it’s important to research multiple insurance plans like ROLLiN’s CTP policy before picking the best one for your circumstances.
2. Third-Party Insurance
The second type of insurance is called third-party insurance.
Third-party insurance is a more comprehensive insurance option that’s a tier slightly above CTP insurance. Besides covering for injuries made to a third party, it also covers a specific event, like property damage or fire and theft.
For instance, if you’re involved in an accident, you can pay for repair and replacement costs for the third party’s vehicle. These plans are cheaper than comprehensive insurance and can be a good middle-ground option for drivers not willing to spend too much on ongoing car costs.
Some providers may also provide a little bit more coverage (like personal car repair costs if an uninsured driver bumps your car), but for the most part, the coverage is limited to its specific policy plus the mandatory insurance.
3. Comprehensive Car Insurance
Lastly, there’s comprehensive car insurance. This insurance policy is the most fully decked-out one. It covers a lot of incidents that may cause loss and/or damage to you, your car, another person, and their car.
Naturally, comprehensive car insurance also requires high premium repayments. This insurance type covers natural, accidental, and criminal activities. This includes:
- Impact damage and collisions
- Flooding and water damage
- Falling objects (like tree branches and hail)
- Damage from theft or attempted theft
- Vandalism
- Fire or explosion damage
Furthermore, comprehensive car insurance may also cover key replacement fees in case it gets lost or stolen. If you find yourself stranded or in dire need of assistance on the road, comprehensive car insurance can also cover roadside assistance and towing needs.
That said, in many of these cases, you’ll have to pay a fee on top of the insurance premium to get access to this coverage. Be sure to review your insurer’s policies to know for certain what’s covered and what’s not.
Can I Always Expect a Payout?
It would be natural to assume that paying for mandatory insurance (or even comprehensive insurance) will guarantee you a payout if the conditions stated in the contract are met.
However, this can’t be further from the truth. If you have been proven to be recklessly driving prior to the collision or impact, then you may not be eligible for approval of a payout.
These are the conditions that constitute reckless driving:
- Driving with reckless indifference to cause harm to another person or their property
- Driving under the influence of alcohol with a blood alcohol percentage of 1g per 100 mL of blood.
- Driving a vehicle without a proper license or registration
- Driving an unsafe or damaged vehicle
- Driving with an active offence in section 43 of the Road Traffic Act 1961
If you meet even just one of these conditions, you won’t get a payout for the incident, even if you have duly paid your insurance leading up to the incident.
How to Pick The Right Car Insurance Type For Me
While CTP insurance is the most cost-effective option of the lot, it may not always be suitable for your needs. However, in some cases, having minimal insurance is the best option for your overall financial health.
Here are some factors to consider to help you select the best insurance policy based on your needs:
1. Assess Your Finances
Before choosing a car insurance provider, it’s important to look at your current and projected financial health. You don’t want to sign into any contract if you don’t have the financial capacity to handle the monthly premiums.
If you find that your money is on the lower side, consider purchasing third-party insurance in the meantime and considering getting comprehensive insurance later on. Conversely, if you are financially healthy, then you can opt to get comprehensive insurance from the start.
2. Gather Different Quotes
It’s imperative that you look at the prices offered across different insurers. While you don’t want to make your choice based solely on price, it is a crucial variable to consider when making a purchase.
Besides the price, take a look at the coverage limits, benefits, and other perks of opting for an insurance partner.
For instance, you may find that roadside assistance coverage is included in an insurer’s package for just a couple of dollars more than the cheapest option. Weigh these value propositions individually and make your selection when you’re most informed.
3. Consider Your Driving Behaviour
Look at your mileage and make an assessment based on that and your overall behavior on the road. Do you drive your car frequently? Do you drive through accident-prone roads? Are you or other car users prone to making accidents on the road?
Based on your answers, you may opt to have lower or higher coverage limits. For instance, infrequent drivers who drive around wide open roads with low traffic may be fine with just third-party insurance.
Conversely, drivers who always drive in hectic, chaotic cities may benefit more greatly from comprehensive insurance.
4. Consider Your Car’s Make and Model
Another consideration to make is your car’s model and age.
If you’re working with a low-value car that you’re looking to replace in the short or medium term, then you can get by with CTP insurance or third-party insurance. This can help you save more money for the eventual purchase.
On the contrary, a newer and more expensive car (or an electric vehicle with hefty repair fees) may need more comprehensive insurance with higher limits.
We hope we’ve helped clear things up for you!
