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.
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
Australian Securities and Investments Commission