The Different Types of Car Insurance Explained
People use the umbrella term ‘car insurance’ a lot, but there are actually three very different kinds of insurance in this broad category:
- Comprehensive car insurance
- Compulsory third party car insurance
- Third party property, fire and theft car insurance
Comprehensive car insurance covers you for damage that occurs to your vehicle as well as any loss of your vehicle (for example because it is stolen) and damage to another person’s vehicle or property (for example a fence, should you damage one in a crash).
Compulsory third party car insurance (often called simply ‘CTP’) is bundled up as a mandatory component of the annual vehicle registration process in every Australian state and territory. This type of car insurance is about personal injury, and it covers you (and anyone else who drives the vehicle) against liability arising from the death or injury of other people in an accident in which you are deemed to be at fault. This coverage includes all passengers - in your vehicle and any other vehicle involved - and extends to other people including pedestrians and cyclists.
Third party property damage car insurance covers you for damage you might cause to someone else’s vehicle or other property in an accident, but it does not cover you for damage to your own vehicle.
Third party property, fire and theft insurance provides the cover above (to another person’s vehicle or property) and adds cover for your vehicle in the event that it is stolen or catches fire - but it does not cover you for damage to your vehicle sustained in an accident where you are deemed to be at fault.
Comprehensive Car Insurance
Comprehensive car insurance is very popular, and it provides the highest level of protection. This type of car insurance suits people who want the best protection, and it is essential - in particular - where the vehicle is subject to a finance agreement. In this case, the lender generally uses the vehicle as security over the loan and usually requires you to take out and maintain comprehensive car insurance cover for the term of the loan agreement. (This is so the interest the lender has in the security over the loan is protected.)
Not all car insurance policies are equal, certainly all car insurance policies cover damage to your vehicle, loss of your vehicle and property, theft of your vehicle, and damage to the property of others. However, policies do vary. For example, some provide coverage for broken windscreens, or a rental car for a period after your car is stolen. In some cases policies provide a brand new replacement vehicle, coverage for your trailer or caravan, or emergency repairs. Some policies allow the freedom to choose your own repairer following an accident, and some require genuine parts to be fitted as a part of the repair process. There is a lot to consider beyond just the price of the premium.
Compulsary Third Party (CTP)
According to the Australian Bureau of Statistics, at the time of the 2014 Motor Vehicle Census, there were 17.6 million motor vehicles (including motor cycles) registered on Australian roads. Every one of them carries compulsory third party car insurance as part of the registration. You cannot register a vehicle without this cover.
In every state except New South Wales and Queensland, the state government provides this CTP car insurance as an intrinsic part of the registration fee. In Queensland, the registered owner may nominate which insurer provides the CTP cover, and in New South Wales the registered owner provides the CTP cover independently in the form of a ‘green slip’, without which the vehicle may not be registered.
Importantly, CTP cover does not extend to any property that is damaged, and it does not generally extend to cover injuries sustained by you or the driver of your vehicle if they are deemed to be at fault in the collision. However, some CTP policies also provide at-fault driver protection insurance at no extra charge, which is a real benefit because prescribed benefits are then paid to you or any driver of your vehicle if severe injuries are sustained and they are deemed at fault.
Third Party Property, Fire and Theft
Any costs arising from property damage can be substantial if you are found to be at fault in a car crash. Even if your car is old and not worth very much, in a ‘worst-case’ scenario, you might crash into a luxury car, or into a shop front, and the property damage bill might be very high. Coverage against this kind of risk is available separately as a third-party property policy, or alternatively you may choose to extend the coverage to include coverage for your vehicle in the event that it is stolen, or catches fire.