Car insurance – a necessary part of long-term car ownership, especially if we rely on our car for work and life in general. Since insurance is a business like any other, there are different levels of coverage and choices you can make to increase or decrease your premium. But are some choices worth the extra (or reduced) cost?
By making certain choices, you may find your coverage doesn’t extend as far as you’d expect. We explain the key differences between some policy options and what they mean for you as a buyer.
Comprehensive vs Third-Party
This is the major choice that will affect how much you will pay for your car insurance. Comprehensive insurance covers you in the event of an accident regardless of who is at fault. If you back into a pole, for example, you can claim for repairs.
Third-party property damage or third-party fire and theft only covers the cost of fixing the damage you cause to another vehicle or property. You can also cover your car for theft or fire for an additional cost. Comprehensive coverage by its nature is far more expensive than third-party coverage.
Market Value vs Agreed Value
Understanding the difference between market value and agreed value can significantly impact the cost of your car insurance. Market value means your insurer will calculate how much your car would theoretically sell for on the open market at the time of any accident and adjust your claim accordingly. Usually, this is much lower than if you actually sold your car in good condition.
Agreed value is a sum that’s negotiated and agreed upon by you and the insurer. If you believe your car is worth more than market value, such as classic or modified cars, your insurance company will likely charge more for the premium.
High Excess vs Low Excess
Most insurers allow you to choose your excess, also known as a “deductible”, when setting up your policy. The excess is the lump sum payment you must pay to the insurance company when you make a claim. A higher excess means a higher lump sum, but lower premiums come renewal. A lower excess has the opposite effect. It’s up to you whether you think you can absorb a higher excess payment if or when it comes time to claim.
Covering Younger Drivers vs. Excluding Young Drivers
If you are over the age of 30 and have adult children below that age who use your car, you may want to include them on the policy. This, of course, significantly increases the premium you will pay due to higher risk factors.
Monthly vs Yearly Premiums
Though monthly premiums mean you can spread out the cost of insurance over a year, paying monthly also attracts loading. Loading is an additional fee insurance companies impose on periodic payments to encourage you to pay up front. Some insurers may waive loading, so keep this in mind when looking for insurance policies.
Other Factors Effecting Car Insurance Premiums
Your claims history is a big factor that can affect the price you pay for your premium, as higher risks mean higher premiums (some may refuse to cover you at all!). Your credit score may also affect how much you pay for your premium, as this also demonstrates higher risk factors. These may be beyond your control, but you should keep them in mind when shopping around for car insurance.
Other choices you can make are to have roadside assistance, new for old replacement, emergency accommodation, and hire cars as part of your policy. These all of course add the overall cost.
If you’re ever unsure, ask a financial adviser or insurance broker to help you understand these differences and see which types of coverage are for you.