Car Insurance

The cost of car insurance

It is generally the first question that people have: how much will the insurance cost? After ascertaining that the policy will cover all the eventualities that need to be taken care of, cost is the primary concern for nearly all consumers. However, when trying to pin down premiums there are no clear cut answers to be found, as the specifics vary from case to case. There is no defined continuity in price within each form of insurance policy simply because costs to the insurer vary widely, depending upon the vehicle in question and the personal circumstances of the vehicle owner. The costs the insurer incurs in providing you with cover will obviously be passed on to you in the form of higher or lower premiums.

What is it worth?

Addressing the first factor first, there are multiple considerations that bear on how your insurer and the premium they charge you will respond to your choice of vehicle. Make and model, the age of the car, and the accessory features that accompany it will all affect the value of your vehicle, and additional factors include the insurer's own claims history with that particular vehicle, financial liability, the period of insurance and the purpose to which you intend to put it – business or personal – all of which will contribute to a decision on the premium you pay.

The car's value will typically be set as either agreed or market. Although it is usually the case that an agreed value policy attracts a higher premium, in the case of theft or accident you will know precisely what cover protects you.

Market value, by contrast, is only determined at the juncture at which loss or crash brings the insurance into play, and the value will depend on the condition the vehicle was in at the time, the number of kilometres you (and any previous owners) have racked up in it, and above all the prevailing market conditions. It is one of those things where it's six of one and half a dozen of the other, since if there's a sharp downturn in the used Focus market just before you write yours off you will take it on the nose, but at the same time the second-hand Saab market may be booming, so a Swedish friend with a similar policy will find themselves placed to reap the benefits of blind good luck.

The inevitable cycle of history

Another important consideration for insurers assessing your vehicle and policy will be the claims history on the model or make in question. If it known that at this particular time there have been a spate of thefts and break-ins by ne'er-do-wells with a similar taste in cars as you, then you may be maxing out on your premium. Similarly, if repair parts would bankrupt a small third-world country, prepare to watch your premium climb towards the stratosphere. There are even vehicles that have such a poor claims history that many insurers will refuse point-blank to underwrite the risk, or solely on the condition that you pay for them to be fitted with sophisticated (read pricey) alarms and immobilisers. Cars with modifications also throw up obstacles with many insurers as there is a perception, borne out by the records, that there is an increased likelihood of theft, or that they indicate a less prudent driver, and hence increase the risk of crashes.

The safest way to minimise the shock of finding yourself facing a massive premium is to investigate the likely premiums with the particular model you are interested in. Companies like the NRMA provide publicly available theft rating for all new models, which are obtainable by simply getting on the phone with its technical advice service. The ratings system it uses gives a combined score of 100 for each car, with a higher score indicating a lower risk of theft, and consequently improved chances of receiving reduced premiums on the vehicle.

The NRMA ratings are a good general guide to the theft risk of cars in the Australian market, but it's nonetheless the case that desirability is a subjective thing, and every bad guy with an eye on a free pair of wheels will carry in their black old hearts their own vehicle preferences. There's no set formula, and all the rating can do is provide you with general trends. A good way to get a feel for the specifics in your area is to simply get a few premium quotes prior to purchase, since this will present the most sensitive data on theft etc.

Are you worth it?

Then there are the considerations that take your personal circumstances into account. Basically, it comes down to the insurer assessing what sort of risk you present, and the variables bearing on their calculations include your age, gender, and your prior driving and insurance histories.

It is this last one, your insurance history, that determines your no claim bonus, an important component in totting up the overall cost of the policy. It essentially constitutes a reward, in the form of a discount on your yearly premium, for being a responsible driver and (as the name indicates) making no claims. Getting through a year with no at-fault claims entitles you to an entry-level Rating 5, which translates to a 20% discount, while by the time you've stretched the golden period out to five years, you're an honorary member of the 60% discount club and the holder of a Rating 1.

If you attain this position you will find that most insurers allow you the choice of protecting it, either by paying an additional premium or as a free bonus, so that you are allocated one at-fault claim per year that will not impinge upon your no-claims status and discount. Obviously, this is bonus piled on bonus, so it's worth exerting yourself to prevent any more than this one claim accruing, allowing you to maintain your rating and discount into the future.

Age and gender of the driver are also used by insurance companies to assess the risk they are taking on. Most companies will require drivers under the age of 25 to pay a supplementary excess on any claim, and it is especially young male drivers who are seen as increased risks, with the result that the excess will often depend on the gender of the driver as well.

As a consumer, however, you are not just a piece of meat hanging in a butcher's shop, to be prodded and poked by the insurance companies as they try to cover all their contingencies. So while they're assessing the risk that you and your vehicle present them with, you need to ascertain to your own satisfaction that the deal will work out to your advantage too. One common mistake is to assume that cost is everything, and it's rarely the case that the cheapest policy is going to be the best. No insurance policy is identical to another, and there will often be subtle differences that can have big ramifications later on. Make sure you know what you are signing before you agree to anything, since it's far preferable to deal with a little extra hassle now than to encounter a whole host of problems once you've called in the insurers following an actual crash.

A comprehensive policy will usually involve cover for accidental or malicious damage, theft, windscreen and glass damage in addition to hail, storm or flood damage.

If this all sounds pretty straightforward, be sure to pore over the whole policy document since insurers frequently impose limits within these provisions that may not tally with your requirements. In some cases, companies will include a proviso that states that they are not liable to cover you if someone else was driving your car, or that windscreen damage will result in the loss of your no claim bonus.

As well as this, there are a whole range of extra items that will be incorporated or excluded depending upon the policy. So, while nearly every insurer will cover the cost of being towed to the nearest repairer following a crash, what happens if the accident occurs in a rural area, far from any services? Policies differ in a big way, with some contributing up to $1000 to cover your transport and accommodation costs while others leave you to figure it all out without a penny of compensation. The value of cover for personal items lost in a theft will also shift noticeably from insurer to insurer, as will regulations governing damage to trailers and new for old replacement vehicles.

Ensuring the proper repairs for your vehicle will doubtless be a big concern for you in the event of damage, and policies vary once more on the issue of authorised repairers. In most cases, the insurer will have a recommended repairer they use, but will allow you to employ the services of another provided you obtain at least two quotes. Notwithstanding this, your insurers still aren't bound to allow you to use the repairer of your choice.