Motor Vehicle Insurance 101

Keeping your wheels in motion.


A car or a motorbike is often one of the most expensive things that you will own. The freedom of driving on the open road is difficult to match but those open roads are varied in both location and condition.

Whether you own your vehicle outright, are paying off a loan, or someone else owns it and you are driving/riding it, appropriate risk management is pretty important. Not everyone has the same level of experience or care on the road. In many cases, it doesn’t matter how good a driver you are, as your chances of being in a bingle are very high. According to the Australian Bureau of Statistics, there are over 600,000 road accidents in Australia each year, costing the economy an estimated $27 billion annualy.

But it’s not just car crashes that you need to worry about, with statistics showing that 1 in every 9 cars are reported stolen each year.

So as careful as you are with your pride and joy, there’s always a chance that something will, not could, go wrong – making motor vehicle insurance a must.

Compulsory Third Party insurance

Compulsory Third Party (CTP) insurance is the most basic level of cover, and as the name suggests, is compulsory by law. It is generally covered by the government or is included in your vehicle registration fees, depending on which state you live in.  This type of insurance provides cover for death or injury to those involved in an accident - apart from the driver. 

Unfortunately, CTP insurance doesn’t cover anything that happens to your vehicle or any damage caused by it. For that you need some form of motor vehicle insurance.

Motor Vehicle Insurance: Different Levels of Cover

Motor vehicle insurance has different levels of cover and as is the way with most insurance products, the more cover you take, the more it will cost.

Third Party Property Damage

This type of insurance covers the cost of damage caused to other people’s property and legal costs but not damage to your vehicle. It includes items such as other cars, buildings, fences, lamp posts and traffic signals. 

Third Party Fire and Theft

Much like Third Party Property Damage, this type of insurance covers the cost of damage to other people’s property, but will also cover you for damage caused to your vehicle by fire or theft. It does not cover damage to the owner’s car caused in a road accident.


The name pretty much says it all – as this insurance product covers you comprehensively. It covers the repair or replacement of your vehicle for events including theft, collision, fire, malicious damage and weather-related damage, such as hail or flooding.

Comprehensive insurance will also cover the cost of repairing and replacing any other vehicles that are damaged by your vehicle in an accident, and damage to property.

In many cases, depending on your policy, it may also cover personal property in the car, death benefits, towing, legal costs and even hire cars needed while repairs are being done. These are usually treated as optional extras, so make sure you talk to an insurance broker or your insurer about which type of policy is right for you.

Legal aspects

As with many aspects of living, the law has an effect on everybody - insurance is no different. Several legal aspects are discussed below:

Duty of disclosure

An insurance company asks potential policyholders a number of questions so that it can decide whether to provide insurance and at what cost.  The policyholder has a legal obligation to disclose all relevant details that may affect the terms of insurance.  This includes any modifications made to a vehicle after the insurance policy is acquired, such as body modifications and sound systems.  ‘Hotted up’ cars can be insured, depending on a number of factors, but it is important to disclose all information relating to the modifications.  Obviously, this may affect the cost.  Some insurers will choose not to insure cars that have been modified, while others tend to specialise in this type of insurance.

Parents and children

Some parents insure the car of a young adult in their own name.  This leads to a lower cost, assuming the parent has a reasonably sound driving record.  This practice is, in fact, fraudulent as it misleads the insurance company on the level of actual risk and therefore the cost. If your children ar eof driving age and own their own vehicles, they should have their own policy. Ensure you inform your broker or your insurer if you have children that are of driving age and drive your vehicle as not doing so could void any claim you need to make. 


Under federal law (Privacy Act 1988), there are strict guidelines related to the type of information that private-sector organisations, such as insurance companies, can ask.  The laws govern the purpose for which information can be used and the way that information about policyholders is treated. 

How Insurance Companies Assess Your Risk

The cost of motor vehicle insurance is determined by the level of cover - the more cover taken, the higher the cost will be, and the level of risk. When you buy motor vehicle insurance, the following factors are considered:

Your age

How old you are at the time you get your insurance policy will affect the price of your premium. The younger you are the more you pay because statistically drivers under the age of 25 are more likely to have an accident. Once you hit that magical time of life called 25 or over, the cost of your insurance can drop quite a lot. However, it will generally rise again when you’re over 65—because statistically, seniors, like younger drivers, have a higher accident rate.

Your gender

Sorry to say guys but studies have been done that show men drive more aggressively than women and are prone to have more accidents, and the prices they are charged for insurance premiums reflect this. Overall, women pay 12% less than males with a similar age, location and driving history.

Your driving record

If you have a spotless driving record with not even the slightest scratch of your car you will most likely pay a lower premium than someone who has had a few incidents. Some car insurance companies even reward safer drivers with ‘safe driver discounts’.

Your car

Cars that cost more to repair cost more to insure and cars that have been modified or ‘pimped out’ cost more again. Cars with extra safety features will normally cost less to insure because the safety features result in less claims and lower claim amounts. So before buying a car you might want to research the average prices for insurance for that make or model to avoid any unpleasant surprises.

Your neighbourhood

If you live in a neighbourhood that has a statistically high crime rate you will have to pay a higher premium than someone who lives in a safer area with (of the same age, same driving record etc). People who live in and near cities pay more than people who live in rural areas because there is more traffic with a bigger chance of having an accident.

When it comes to choosing your policy it can be hard to figure out what’s a reasonable price to pay. So make sure you get plenty of quotes from different insurance companies or talk to a broker to find the policy that covers your needs at a price that suits you best. It's also important to remember to read the conditions to see what’s covered and what isn’t.

Vehicle Value

In terms of how your vehicle is valued, most insurers will offer two choices - market value or agreed value.

Market value — this is what your car would be sold for on the open market at any given point in time.

Agreed value — this is a fixed value agreed to between you and your insurer.

Can I reduce my premium?

Insurance companies generally provide a lot of options for people to reduce the premiums they pay. You can actively do a lot of things to help keep the costs down. These include:

  • Parking your car safely. Securely parking your vehicle (either off street or in a lock-up garage) can reduce the risk of theft, vandalism, flood or storm damage claims.
  • Maintaining a good driving record reduces the risk of you making a claim – many insurers offer sizeable discounts for drivers with good driving records.
  • Buying a car fitted with safety and security devices like alarms or immobilisers to reduce the risk of theft and damage, or have them installed if this is feasible.
  • Driving less often. It sounds silly but some insurers will offer lower premiums for drivers who don’t drive as much.
  • Limiting the number of drivers you nominate on your policy, especially if they are under 25.
  • Choosing a higher excess. This is a good option if you don’t think you’re going to need to make a claim any time soon. The higher the excess, the lower the premium
  • Choosing to insure for market value instead of nominated value. For newer vehicles, this isn’t usually an issue but as a vehicle’s value depreciates quickly, the market value of your vehicle may not be enough.
  • Bundling your car insurance with other types of insurance, such as home and contents, life or travel insurance.

As always, contact a broker or your insurer to check how these may be taken into account.


As with most types of insurance product, insurers will offer a range of extras that you may wish to consider. Of course, with any extra you choose, there will be an additional cost. These include:

  • protection of your no-claim bonus
  • a rental car following an accident
  • windscreen and glass damage cover
  • exclusion of cover for drivers under 30 years of age
  • cover for stolen work tools or stock
  • roadside assistance


What to do if you have an accident

When people take out motor vehicle insurance, they hope they never have to use it.  Makes total sense. But with so many accidents happening every day, there’s a pretty good chance you will need to make a claim at some point.

Luckily though, most accidents only damage the vehicles rather than the occupants. The question is, do you know what to do if you have an accident?

  • Firstly, never drive away from the scene of the accident until you’ve completed the following steps.
  • Don’t panic! As hard as it can be, try to stay calm. Switch off the ignition and check to see if anyone is injured. If so, call 000 to get medical assistance immediately.
  • Report the accident to police if someone is injured (this includes you) or if there is damage to property whose owner is not in attendance. It’s also a good idea as sometimes your insurance company will want to see a police report. Speaking of which, it’s probably a good idea to call your insurance company and let them know.
  • Try and prevent any further accidents by keeping your hazard lights on. Only move your vehicle if it is safe to do so, and if it’s interfering with traffic.
  • Make sure you give your name, address, registration number, contact details and insurance information to the other people involved in the accident. Be sure to get the same details from the other driver, and contact details from witnesses if there are any. 
  • When you get a chance, use your camera or phone to take photos of the vehicles if there is visible damage. If you have visible injuries, take photos of them too, and then instagram it. Maybe not, but having a photo record of the accident can be invaluable when it comes to making a claim later on.

Pleasure Crafts (boats)

Pleasure craft insurance is designed to protect private boat owners from loss or damage to their vessel and accessories as well as any legal liability arising out of the use of the vessel.

Like private motor vehicle insurance, there is usually a no claims bonus system and this can result in a cheaper cost if no claims are made.

Policies differ slightly among insurers, but the basic tenets are common to most insurers in Australia and New Zealand.

A typical pleasure craft owner’s policy protects the insured and anyone using the pleasure craft with the insured’s permission. The definition of BOAT usually includes:

  • the hull
  • motors - including control equipment
  • sails, masts, spars and rigging
  • auxiliary dinghy (if any), accessories and trailer

The craft is insured for market or agreed value, and is usually accompanied by an excess. The excess is payable only when the policy holder is at fault.  

Will pay/Full cover

Won't pay /No Cover

Voluntary rescue work

Extra costs- i.e. hiring replacement craft

Towing damaged craft to safety

Reduction in value- because of age or damage

Personal property on craft if lost or damaged

Cost of worn-out parts

Inspection of hull if stranded

Rust or corrosion

Recovering boat, reducing loss costs

Faulty workmanship, structural defects, design

Dismantle, clean craft if submerged

Mechanical or electrical breakdown


Pre-existing damage (prior to insurance)


Damage to tyres of trailer


Skiing or diving equipment,


Fishing equipment not permanently attached to craft,


Unsecured sails, protective covers, outboard motors


Overheated motors


Damage to sails, masts, riggings as a result of racing.


For sailing boats, a racing risk extension is available (for races that are less than 50 nautical miles).

When filing a claim, an insured must fulfil various contractual obligations including to:

  • Make a claim as soon as possible after a loss. Failure to do this may result in reduction of claim resulting in disadvantage to the insured
  • Take all reasonable steps to stop any further loss
  • Advise the nearest police station if boat is lost, stolen, vandalised or maliciously damaged
  • Keep the damaged property so that the insurer may inspect it
  • Advise the insurer of any prosecution or inquest that may be held
  • Send any document relating to a claim to the insurer as soon as possible (alternatively for some insurers within 72 hours) of receiving the document
  • Not repair or replace damaged property without the consent of the insurer
  • Not pay, promise to pay or offer payment, or admit responsibility for a claim


If you’re taking the opportunity to travel more, or just enjoying your boat, caravan or motor home on the weekends, there are insurance products to help make sure you’re always protected.

Whether you keep it permanently onsite, or take it across the country, caravan insurance policy provides protection against accidental damage to your caravan.  You can also cover extras such as your annexe and contents.

There are usually two types of caravan insurance covers, comprehensive (which covers both parked and mobile caravan) and onsite (which cover parked and/or immobile caravans).

What is a product disclosure statement?

A Product Disclosure Statement ( PDS) is a legal document, or sometimes a group of documents, that contains information about your insurance policy. A PDS will typically include any significant benefits and risks, the cost of the policy and the fees and charges that the policy provider may receive. Supplementary PDSs may be issued from time to time and must be read in conjunction with the PDS to which they relate. A PDS will help you understand the insurance policy and give you the the information about the terms and conditions, policy benefits and exclusions that you can use to compare differet policies. You should be aware that a PDS doesn't take into account your individual needs or financial situation. 

Reading the PDS will help you compare and make an informed choice about the policy and give you information on you how your insurer will respond if you need to make a claim. And most importantly, if you don’t fully understand the PDS contact your insurance company and ask for more information. It's always better to have more information than less.

Cooling off period

When you take out a new policy make sure you have the details of your new product explained to you and confirmed in writing. In most cases, you will also have the benefit of a 30-day cooling off period. This means if you change your mind in the first 30 days after joining, and haven’t made a claim for benefits on the new product you may get a refund of any contributions you’ve paid.