Car insurance: what each level actually covers

Compulsory third party insurance (CTP) — cover for injuries to people caused by your car — is the one car insurance decision that has already been made for you. Per Moneysmart's guide to choosing car insurance, you must have CTP to register your car, and in some states it's included in your registration costs, so you don't buy it separately at all. If your car is registered, this layer exists.

What CTP doesn't do is the part that surprises people. It does not cover damage to cars or property — which, Moneysmart adds in the same breath, can be expensive. Cause a crash with nothing but CTP behind you and the injuries are covered, but the other driver's panel beating, and your own, land on you personally. The compulsory layer protects people; it leaves every car in the picture bare.

So the question is never really "should I insure the car?" — registration answered that. The question is which of the optional layers, if any, to stack on top of CTP. Moneysmart's insurance hub frames the general rule: not all insurance is right for everyone, and the cost can be very different across insurers, so think carefully about the type and level of cover that suits your needs and who you buy it from. The next section walks up the three optional rungs.

The first rung above CTP is third party property damage insurance — it covers damage your car causes to other people's cars or property, but not damage to your own car. It's the layer that stands between you and someone else's repair bill: if you're at fault, their car is the insurer's problem; yours is still yours. Moneysmart notes some of these policies let you pay extra to protect your own car if it's stolen or damaged by fire.

Buy that extra protection as a standard package and you're on the second rung: third party fire and theft, which per Moneysmart includes the same cover as third party property damage, plus cover for your car if it's stolen or damaged by fire. Your car is now protected against two specific fates — but a crash you cause still leaves your own repairs uninsured.

The top rung is comprehensive insurance: damage to your car and to other people's cars or property, even if you caused the accident, plus cover if your car is stolen or damaged by fire or weather events. It won't cover everything, though — Moneysmart's advice is to check the exclusions, comparing what different policies leave out (things like mechanical failure, intentional damage or impaired drivers) as well as what they throw in, such as roadside assistance or theft of personal items.

When a policy does pay out for your car, the payout runs off one of two numbers you chose at sign-up. Market value is the amount your car would have sold for at the time of the accident — you don't know in advance how much you'll get, and you can't change the amount. Agreed value is a fixed amount decided by you and your insurer — certainty, but per Moneysmart you'll pay a higher premium for it, and as the car gets older the insurer may reduce the agreed value each year.

The other number you choose is the excess — the amount you pay when you make a claim. Two details from Moneysmart's claims guidance are worth reading twice: generally you pay an excess whether you're at fault or not, though some policies waive it in limited circumstances; and it's worth checking whether an insurer always charges an excess even when the accident wasn't your fault. The excess is not a technicality — it's the first money out the door on every claim.

It's also a lever. Increasing your excess reduces your premium, so the same policy can be tuned cheap-to-hold or cheap-to-claim — Moneysmart's advice is to weigh a higher premium with a lower excess against the opposite. The excess quietly sets a floor under your cover, too: if a repair costs less than the excess, claiming isn't worth it, and Moneysmart notes your future premiums may rise if you do claim. Small dents live below the floor, whatever level of cover you hold.

A car insurance premium — the price you pay for the policy — is built from a list of inputs Moneysmart spells out: the type and value of the car, who will be driving it, how often and how far it's driven, where you live and where the car is kept (a garage prices differently to the street), plus two inputs that are entirely yours — the type of insurance you choose and the excess. Some of that list is fixed. More of it moves than you'd think: driving less, secure parking, a safer suburb and extra safety features are all changes Moneysmart says are worth reporting, because they should lower the premium.

Then there are the levers that cost nothing but a phone call. Moneysmart's savings guidance: compare insurers before you renew — the price can vary, and policies carry different exclusions, conditions and discounts — and ask your current insurer directly whether they'll match or beat a competitor's quote, whether you're getting every discount you're eligible for (multi-policy, online and loyalty discounts among them), and whether a different excess makes the policy cheaper. Tweak the cover itself, too: extras like hire car cover or roadside assistance you never use can come off.

One discount deserves a sceptical eye: the no claim bonus — a discount for staying claim-free, also sold as a safe driver reward or rating level. Per Moneysmart, an at-fault claim generally costs you the bonus or shrinks it; insurers may lift your premium after a claim even when you weren't at fault; and some events you'd never call your fault — theft, windscreen damage, hitting an animal — may be treated as at-fault claims. The bonus can also be smaller than the saving from simply shopping around, which is Moneysmart's closing advice: compare, don't cling.