Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Car modifications and your insurance
Pimping your ride: Dos, don’ts and how it affects your car insurance
Sometimes, it’s nice to take something and make it your own. Sometimes, that thing you take and make your own is your car.
If you are contemplating souping up your vehicle, regardless of whether the modification you want to make is in the form of a minor safety-minded addition or in the form of a full-on facelift, there are some important things you need to know and consider, both when it comes to the law and your car insurance.
So, if customising your ride is something you feel compelled to do, make sure you do your due diligence. While we can’t help you paint those fun racing stripes on your car, we can help you with the aforementioned due diligence. Let’s dive in and have a look at the modification-related things you need to know.
Important non-insurance considerations prior to making modifications
First and foremost, before you add to or change anything on your car, you need to be certain that what you plan to do is actually legal. All vehicles being driven on the roads need to be what is termed “street-legal” — and there is every chance that your intended modifications may impact your vehicle’s street-legal status.
As a result, always notify your relevant licensing authority before making any modifications to your car.
What happens if my modifications are illegal?
If your modifications aren’t legal, typically a few of the following things will happen, all of which are pretty massive bummers:
- You’ll face a significant fine.
- Your vehicle will be de-registered.
- Your vehicle will be impounded.
- You’ll receive a defect notice.
How do I know if my modifications are legal?
In Australia, modifications to your car need to be approved by your state or territory’s motor vehicle licensing department and they must comply with the following:
- Australian Design Rules (ADR)
- The National Code of Practice for Light Vehicle Construction and Modification (NCOP)
- Road rules and regulations
In New Zealand, modifications to your car typically require a low volume vehicle (LVV) certification, which is needed in order to get a warrant of fitness (WoF) — which you cannot drive your car without.
What sorts of modifications are usually allowed by law?
Permissible vehicle modifications include, but are not limited to, the following:
- Alarm systems
- Roof racks
- Stereo systems
- Additional lighting
- Body markings
- Single tone air horns
- Air conditioning
- Stabiliser bars
- Air shock absorbers
- Badge bars
What sorts of modifications are usually illegal?
In general, the following are no-go zones:
- Loud exhaust systems
- Dark window tinting
- Non-compliant modifications to the engine, chassis, tyres or suspension
Important modification-related insurance considerations
Now that we’ve handled the legal stuff, let’s take a look at what you need to be aware of when it comes to modified vehicles and car insurance.
Do I need to notify my insurer?
Yes, you absolutely need to notify your insurer if you plan to make changes to your car. It’s as simple as that. Failing to notify your insurer of any modifications could lead to the cancellation or voidance of your policy and rejection of any claims you make.
In some circumstances, failure to notify your insurer about modifications may even lead to the warranty on your car being voided.
What kinds of modifications will and won’t be covered?
While policies will vary between individual insurers, when it comes to modifications, insurers deemed “mainstream” will usually cover the following:
- Chrome exhaust systems
- Radio and stereo systems
- Alarm systems
- Alloy wheels
- Driving lights
- Bull bars
- Bicycle racks
The sorts of things that these mainstream insurers usually won’t cover include the following:
- Nitro or hydrogen fuel-equipped engines
- Custom paint work
- Turbocharged or supercharged engines
- Racing harnesses
- Roll bars
- Roll cages
Will modifications affect the cost of insurance?
Typically, yes. While some modifications are pretty benign and won’t make a difference to your premium, where other modifications are concerned, whether or not the effect on cost is positive or negative will depend on what kind of modifications you are planning to make.
If you’ve put an alarm system in your car, which lowers the risk of theft, or you’ve added safety features, which lower the risk of an accident, then your insurance premium may actually be lower.
However, changes that impact performance and aesthetics (yes, even those fun racing stripes) usually carry a higher accident risk — and, therefore, a higher premium. Other changes that increase the value of your car — like stereo systems and custom parts —also increase its appeal to thieves, meaning such modifications also attract a higher premium.
How does me being super-young and hot affect my insurance prospects if I modify my car?
It’s pretty simple: If you modify your vehicle (particularly in a manner that is linked to greater engine capacity and speed) and you’re under 25 (and particularly if you are male), you may find yourself uninsurable, regardless of what type of insurer you try to acquire coverage with (e.g. mainstream or specialist insurer).
Who are these specialist insurers you just mentioned?
If the modifications you want to make to your vehicle will have mainstream insurers showing you the door, you may have better luck with a specialist insurer.
Specialist insurers will often provide coverage to modified vehicles in circumstances where mainstream insurers won’t. For example, specialist insurers will usually provide insurance coverage for enhancements or alterations to suspension, engine or chassis (provided such changes are legally compliant).
However, bear in mind that younger drivers with modified vehicles will typically struggle to secure cover with a specialist insurer, and premiums in general with specialist insurers aren’t extremely competitive — the idea is that they will provide you with insurance where other insurers won’t, not that they will provide you with cheap insurance where other insurers won’t provide you with insurance at all.
While the types of modifications that carry higher premiums will vary among specialist insurers just as they do among mainstream insurers, modifications that increase the power of your vehicle will usually attract a relative increase in premium with specialist insurers. For example, if the modification to your car increases its power by 15 per cent, then your insurance premium will also increase 15 per cent.
The overall message
Never make a modification to your car before doing your research about whether it’s legal and how such a modification will impact your insurance. Those racing stripes look way better on a vehicle that is both insured and not impounded.
Read more about decisions that can affect your car insurance here