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Why You Need Car Insurance For a Car Loan
We explain the basics of car insurance and why you need it when applying for a car loan.
Last modified: 29th October 2024
William Jolly |
Last modified: 29th October 2024
William Jolly |
William is the Content Manager at Jacaranda Finance. He has worked as both a journalist and a media advisor at some of Australia's biggest financial comparison sites such as Canstar, Compare the Market and Savings.com.au, and is passionate about helping Australians find the right money solution for them.
You can get in touch with William via williamj@jacarandafinance.com.au.
You can get in touch with William via williamj@jacarandafinance.com.au.
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Car insurance is arguably one of the most important insurance policies you can get: if you’re ever in an accident, you don’t want to be paying thousands of dollars for repairs. But did you know that car insurance is often compulsory when applying for a car loan?
In this article, we’ll explain the ins and outs of car insurance, how much it costs, and why you need it when applying for a car loan.
Originally published 22 August 2022.
On this page:
- What is car insurance?
- The different types of car insurance explained.
- Why do you need comprehensive car insurance for a car loan?
- How much does comprehensive car insurance cost?
- What affects your car insurance premiums?
- How do you find the right policy?
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What is car insurance?
Car insurance is a type of insurance policy designed to cover damages to your car as well as other cars, people and property. By paying your insurer an annual premium (the cost of the policy), they should cover you for an amount specified in your insurance contract.
The amount you’re covered for will depend on several factors, one of which is the type of policy you go with.
The different types of car insurance explained
There are essentially four different types of car insurance in Australia:
- Compulsory Third Party Insurance (CTP)
- Third Party Insurance (don’t confuse it with Compulsory Third Party Insurance!)
- Third Party, Fire and Theft Insurance
- Comprehensive Insurance
CTP insurance, also known in some states as 'Green Slips', is a mandatory insurance in each state and territory. It’s designed to protect anyone you might injure while driving and is the only type of car insurance that does so.
Paying for CTP insurance is often an included cost when registering a car, but it will depend on the state. Costs will vary based on a number of factors, such as:
- Your location and vehicle type
- The age of the vehicle
- Your accident history
- Your age and the age of other drivers
- Whether you use the vehicle for personal or business purposes
And more.
TPP insurance only covers property damage caused by your vehicle. For example, driving through someone’s fence would likely be covered by TPP, and some policies can also cover legal costs as well.
According to Finder, TPP insurance costs around $46 a month on average.
Third-party fire and theft covers the same as TPP insurance, as well as damage caused to your vehicle by fire and theft. However, it doesn’t cover any other forms of damage.
Comprehensive insurance, on the other hand…
Comprehensive car insurance is... well, the most comprehensive type of car insurance. It covers everything TPP and fire and theft insurance covers in addition to any other damage to your car, such as:
- Damage to your car from another vehicle.
- Damage to your car from rain, hail, natural disasters, etc.
- Your car being stolen.
And much more, even if you're at fault. The policy can also provide extra benefits like roadside assistance and hire cars at no additional cost. It'll all depend on the policy.
What does each type of car insurance cover?
See the table below for an abridged version of what each type of car insurance policy covers.
| Type | Injuries or death to other people | Damage to other people’s car/property | Damage or loss caused by fire/theft | Damage to your car |
|---|---|---|---|---|
| CTP | Yes | No | No | No |
| Third-party property (TPP) | No | Yes | No | No |
| Third-party fire and theft | No | Yes | Yes | No |
| Comprehensive | No | Yes | Yes | Yes |
How much does comprehensive car insurance cost?
TPP and CTP insurance can cost a few hundred dollars a year each for more people, but comprehensive car insurance blows these costs out of the water. According to the Australian Automobile Association’s (AAA) Transport Affordability Index, the average annual cost of comprehensive car insurance in capital cities was $2,419 as of March 2024. Two years prior, in 2022, that average cost was just $1,580.
But depending on where you live, you’d see very different figures. For example, comprehensive policies were way more expensive in Melbourne ($3,373 per year) and Brisbane ($3,127) than Perth ($1,552). In regional centres, the average annual car insurance premium was $1,955.
Here’s how much comprehensive car insurance policies cost on average in each capital city as of 2024:
| Rank | City | Average Annual Premium | Quarterly Change |
|---|---|---|---|
| 1 | Melbourne | $3,373 | +$290 |
| 2 | Brisbane | $3,127 | +$510 |
| 3 | Darwin | $2,658 | +$54 |
| 4 | Sydney | $2,631 | +$210 |
| 5 | Canberra | $2,229 | +$210 |
| 6 | Adelaide | $2,099 | +$202 |
| 7 | Hobart | $1,678 | N/A |
| 8 | Perth | $1,552 | +$119 |
| - | Capital Average | $2,418 | +$199 |
| - | Regional average | $1,955 | +$162 |
Source: AAA Transport Affordability Index – Quarter 1, 2024.
Why has my car insurance policy become more expensive?
The above table shows some significant price increases, with the average capital city premium rising by just under $200. Brisbane insurance premiums rose by over $500!
Your insurer has probably sent you an update recently telling you they’re increasing your premiums by a significant amount. But why is this?
According to March 2024 inflation data from the Australian Bureau of Statistics (ABS), insurance prices in Australia rose by 16.4% annually, the strongest annual rise in 23 years.
The Insurance Council of Australia (ICA) told Drive that the main reason for rising car insurance premiums is that cars are becoming more expensive to make, buy and repair.
"Cars are now more complex and sophisticated – a small ding that might have once sent you to the panel beaters for a straightforward repair now requires fixing and testing the complex sensors that are used for navigation and safety systems," the ICA said.
"Currently, motor vehicle premium prices are rising because of the increasing value of motor vehicles making them more costly to replace, inflation and supply chain issues driving up repair labour costs and the price of motor parts, and the increasing cost of capital for insurers driven by ongoing extreme weather events.”
Why do you need comprehensive car insurance for a car loan?
Car insurance isn’t just a ‘nice to have’. If you’re applying for a Car Loan with Jacaranda Finance or most other lenders, then you will need a comprehensive car insurance policy. Otherwise, your application may not be approved.
This is because we’re a responsible lender, which means we require proof that you’ve comprehensively insured the vehicle before we can send the money to your bank account.
Nearly all responsible lenders in Australia require comprehensive insurance, as it’s the only way to recover the loan balance if the car is written off in an accident.
For this reason, having a good comprehensive car insurance policy is in both your interest and ours.
Not sure what car you want yet?
What affects your car insurance premiums?
Car insurance is likely to cost a different amount for each person, as there’s a wide range of factors that influence premiums.
As shown in the example above, your state or territory is one factor: some states and territories pay more than others on average due to factors like crime and theft rates, accident statistics, the portion of residents who drive, and much more.
Here are just some of the other key things that affect car insurance premiums:
- Your suburb may have higher crime rates, more natural disasters etc.
- Where you keep your car, be it in a garage, on the street etc.
- The value of your car, as more valuable cars usually cost more to insure.
- The colour of your car, as some colours are more likely to be involved in crashes (true story!).
- The security features on the car.
- The safety rating of the car.
- Any modifications made, as these can impact how your car runs.
- How much it costs to repair and more.
See also: The 10 Most Common Car Repairs.
- Your age. Drivers under 25 tend to pay a lot more than older drivers.
- Your gender. Men are involved in more claims and therefore tend to pay more than women.
- Your claims history. The less you claim, the cheaper the premium.
- Your driving history. Speeding fines and infringements can up your premiums.
- The number of drivers listed and more.
For example, Canstar research revealed a male under 25 in NSW pays $2,505 on average in New South Wales, while a female under 25 pays $2,254: about $250 less.
However, drivers of both genders under 25 pay a lot more than older drivers. In the same state, an over-50 driver would pay just $991 per year on average.
- Your level of cover. Some insurers offer different tiers of comprehensive cover.
- Your excess. A higher excess when you claim can lower your ongoing premiums.
- Optional extras are included in your policy, which can cost more, like free windscreen replacement.
- Your driving habits. Some insurers now offer 'pay-as-you-drive' policies with distance-based premiums.
- Insurer discounts like online application discounts, multi-policy discounts, etc., can give you money off your premiums.
How do you find the right policy?
We haven’t yet discussed one of the biggest reasons behind the vast differences in car insurance costs: the insurers themselves. According to Finder’s research, the most expensive insurer charged more than double the cheapest on average for the exact same driver.
Different insurers will have different risk profiles and different levels of coverage, which is why it’s crucial you find the right car insurance policy. When applying for a Car Loan at Jacaranda, we assess your whole financial situation, which includes looking at your regular expenses.
If you save hundreds of dollars each year just by changing your insurer, this could significantly improve your chances of approval.
Compare car insurance policies online
Thankfully, it’s easy now to compare car insurance policies on the internet. There are multiple car insurance comparison sites that can provide quotes based on your details - just be mindful that they might not be showing you the whole market.
It doesn’t take long to find a policy that could save you money and be better suited to your needs as well. And speaking of things that don’t take long…
Apply for a Jacaranda Car Loan today
Whether you’ve already got a car in mind or you’re looking for pre-approval before you go shopping, Jacaranda Finance has got you covered, thanks to our Car Loans of up to $25,000.
Our speedy online application form and loan processing platform allow you to apply in just 5-12 minutes1. If you apply within normal business hours, you could receive same-day pre-approval2.
What’s more, once you’re approved, we can send the seller the money in just 60-seconds3 because we know you want to be on the road sooner rather than later.
William is the Content Manager at Jacaranda Finance. He has worked as both a journalist and a media advisor at some of Australia's biggest financial comparison sites such as Canstar, Compare the Market and Savings.com.au, and is passionate about helping Australians find the right money solution for them.
You can get in touch with William via williamj@jacarandafinance.com.au.
You can get in touch with William via williamj@jacarandafinance.com.au.
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