If you’re scratching your head wondering “What is comprehensive car insurance and do I need it?”, here’s a quick guide from Finance One.
You’re thinking about getting a loan to buy a car and you’ve been told you need comprehensive insurance before you do.
But what is comprehensive car insurance and why do you need it?
Talk of insurance rarely excites anyone, but the truth is it’s important and could save you thousands of dollars in the long run, not to mention a lot of headaches.
There are different types of insurance, but comprehensive insurance gives you the most coverage.
Why do I need comprehensive car insurance?
The reality is that throughout your driving career, minor mishaps or accidents can and do happen.
Whether you’re at fault or not, without comprehensive car insurance, you could be left without a vehicle or face paying for your and the other party’s cost of damage to their vehicle or property.
Consider the cost of repairing a dented car door. Now imagine you were held responsible for writing off someone’s entire vehicle. Now imagine that it’s a luxury vehicle that is damaged beyond repair and it is your fault. Few of us have enough money to pay for that type of problem!
What type of car insurance should I get?
Many new car owners are bamboozled by all the different car insurance policies and premiums on offer. Luckily, it’s not as complicated as it seems. It’s worth taking a bit of time to understand the differences between the main types:
- Compulsory Third Party. By law, you must have compulsory third party insurance (CTP). This is also known as a Green Slip in New South Wales and Transport Accident Charge in Victoria. Brand new cars bought within your state or territory from a dealership automatically include CTP. The same is true with second-hand cars that are already registered.
CTP is the most basic form of insurance. It only covers you, and any other people involved, for physical injuries due to an accident caused by you.
- Comprehensive insurance gives you the extra cover you need on top of CTP. It covers damage to your own vehicle and to other people’s vehicles or property if you are at fault.
Comprehensive insurance may be optional, but it is well worth the extra cost as it can save you paying out huge repair bills. It also provides cover if your car is stolen or damaged due to fire, storm or flood. Plus, it’s a prerequisite for almost any car loan.
Premiums for comprehensive insurance will vary depending on your age, your previous claims history, the type of vehicle and other factors.
- Third party property, fire and theft. When you’re shopping around for insurance, you may also see this option as a type of cover. It is a no-frills insurance option and generally only covers damage caused to a third party’s vehicle or property, and not yours.
Example Case Study
Still confused? Here’s an example of how comprehensive car insurance works:
‘David’ had recently moved to a new suburb and wasn’t familiar with the roads. While trying to work out how to get to the gym from work, he accidentally crashed into the back of another car at a roundabout.
Fortunately, he had comprehensive car insurance.
David passed on the details of the other driver to his insurer. They arranged payment for the repairs to her car valued at $7,000 and also paid for a replacement front bumper and lights on his car, worth $1,500. He only had to pay an excess of $500.
In total, the accident cost David $500 (plus a missed workout), instead of $8,500. His insurance premiums that year had cost him less than $1,000.
Car loans can help you afford the freedom that comes with a set of wheels. Comprehensive insurance is a part of that journey.
Read more: 5 Reasons Why Vehicle Insurance is a Must
Finance One is a non-bank lender that provides opportunities for everyday
Australians to rebuild their credit rating and improve their lifestyle.
For more information on what you need to be able to get a vehicle loan, get in touch to find out how we can help. Normal lending criteria, terms & conditions and fees & charges apply.
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.
