NEWS

Your Money & You

September 2011

Car Insurance essentials

Buying a car or motorbike can be exciting but there are a number of steps to take before you hit the streets.

You need to make sure you have the budget for a car. As well as the purchase price, factor in the yearly costs of registration, maintenance, fuel and insurance.

Get insured
The cost of insurance is determined by the level of risk your insurer is taking on. As more young drivers are involved in accidents than older drivers, most insurance companies charge a higher premium for drivers under 25.

Young drivers may also have to pay an additional ‘age excess’ when making a claim. Always check your policy carefully to see what excesses might apply.

If you’re under 25 and your parents are letting you use the family car, they will have to pay extra to insure you and the car. It’s important that they inform their insurer when you start driving. Otherwise, the insurer might not pay for damage if you have an accident.

Types of car insurance
Compulsory third party (CTP) insurance is the most important type of car insurance and is required by law. It covers death and injury to people if you are involved in an accident. Each State and Territory has different rules relating to this type of cover. Go to your state or territory traffic/transport authority for information on CTP car insurance.

Additional types of car insurance include:

  • Third party property insurance that covers damage to other people’s property (e.g. their car or home) and your own legal costs.
  • Third party, fire and theft insurance that covers damage to other people’s property, and provides limited cover for damage to your own car caused by theft or fire.
  • Comprehensive insurance  that covers damage to your own car and other people’s property if your car is in an accident (including fire) as well as theft.

Having comprehensive insurance is the safest option, otherwise having at least third party property insurance is the way to go because it means you won’t have to pay a hefty sum if you wreck someone else’s vehicle.

Choosing the right cover
When deciding what level of additional cover you need. Ask yourself some questions. If I crash into a luxury sports car will I be able to afford the repairs? Is my car likely to be broken into? How will I get around if my car is stolen or written off?

Car insurance policies are based on either ‘agreed’ or ‘market’ value. An agreed value policy has a set dollar value for your vehicle. Market value policies value your car based on the make, model and condition. The agreed value is usually higher than the market value.

When comparing the cost of different car insurance policies, weigh up the difference between having a high premium and low excess versus the opposite. You may be able to save on your premium by increasing your excess.

When to get insured
If you’re buying your car from a car dealer you do NOT have to get the insurance from them. Buying a car, getting a loan and paying for insurance are three separate things. Always shop around. You might be better off getting each of these services from three different places.

If you buy a car privately, including through an internet site, you still need to shop around for insurance. In fact, when you’re buying privately it pays to be extra vigilant checking the details and doing all the appropriate paperwork and back checks.

Go to your State or Territory roads and traffic authority for helpful information on what you need to do when buying a car privately. It’s also very important to call your insurer before you buy to find out everything they need to know about the car.

When you’re buying a car privately you should always do a REVS check. REVS stands for Register of Encumbered Vehicles. REVS is a free service run by State and Territory governments which can tell you if the car you’re thinking of buying is carrying a debt, and could be repossessed.

Whether you’re buying at a dealer or privately always ensure you’re covered BEFORE you drive the car away. And always shop around with at least three different insurers so you can compare quotes.

For more information about buying a car and getting insured visit ASIC’s consumer and investor website, MoneySmart at www.moneysmart.gov.au or call 1300 300 630.

E-mail ASIC with topics that interest you via ADFcolumn@asic.gov.au

Greg Medcraft
Chairman
Australian Securities and Investments Commission

The New Monetary System

On 15 August 1971 President Richard Nixon ended the final link between the dollar and gold.

Under the post WWII Bretton Woods system the US dollar was exchangeable into gold at $35 an ounce.  Other currencies were linked to the US dollar.

Ordinary people couldn’t swap bank notes for gold but central banks could.

By 1971 this system has ceased to work in some ways because the Vietnam War was running up large debts for the US Government.  The Swiss Government pulled out of the system.  Nixon fired the final bullet into the gold standard which had been dying for sometime.

Instead of a link to gold, Nixon replaced it with what economists call ‘fiat’ money.  With this change money became just bits of paper and bytes in a computer.  By any measure, it was an immense change.

Nixon’s change meant currencies would float against one another and independent banks free of political control would maintain their value without the direct interference of politicians.

It’s true the gold standard had its faults – some countries had to revalue their currency against the price of gold.  But it did provide price stability – gold remained at $35 an ounce for 38 years despite WWII, the cold war and the rapid reindustrialisation of Japan and Germany.  Because of the peg to gold countries could not print money because it seemed like a good idea.

During the last 40 years gold has increased more than 40 fold from $35 to over $1,750 an ounce.  The investment bank, J.P. Morgan, predicts that by 2012 gold will be worth about $2,500 per ounce.

The last four decades have been quite traumatic economically speaking and the pace of financial volatility seems to be getting quicker.  Pictures of brokers with their head in their hands staring into their computer screens are very common.  In the last few weeks we’ve been warned of the dangers of a fresh market meltdown, more banking collapses and even a double dip recession.

Over the last 40 years we’ve seen repeated booms and busts.  Hyperinflation in the 1970s, soaring stock markets and currency crises of the 1980s, the Asian crisis in the 1990s, the dot com bubble and most recently the housing and credit bubble.

Why?  One argument is that there is always too much cheap money swilling around.  According to McKinsey, global debt now stands at $158 trillion.  This is up from $77 trillion in 2000.  It accounts for 266% of global Gross Domestic Product.

This might explain why the gold price is going so high.  People want the certainty it provides.  Some central banks have been buying it.  A Swiss political party has forced a referendum on taking that country back to the gold standard.

James Grants, an American economist, said that few monetary systems last beyond 40 years.  Will the system put in place by Richard Nixon see its 50th birthday?  You might like to bet a dollar or two on it!

Free Seminars anywhere in Australia

The ADF Consumer Council provides financial education at Initial Training, Force Preparation, Post Deployment, Leadership Training, During Career and Transition, many of which are components of ADF training programs. The Consumer Council is happy to provide expert speakers free of charge on a range of financial topics to any ADF unit in Australia.

For more information contact us via our website (www.adfconsumer.gov.au).