License article

Step 1: Types of car insurance

What you'll learn in this step: In effect, you can't legally drive a car without CTP insurance.

Buying insurance is part and parcel of buying a car - in fact, you'll have some sort of insurance in place before you drive the car out of the yard, even if it is just an interim 'cover note' until you can make final arrangements.

The thing is, without insurance you could find yourself facing a hefty bill if you're at fault in a car accident - and that's just for the car or property you've damaged, without considering the damage to your own vehicle.

There are three main types of insurance - compulsory third-party insurance, third-party property, and comprehensive insurance.

In addition, there are products such as gap insurance and mechanical breakdown insurance.

Compulsory Third Party
Compulsory third-party (CTP) insurance is more commonly known as 'green slip' insurance, after the colour of the application form. In effect, you can't drive a car without CTP insurance because you can't register your car without it.

You buy CTP insurance annually when your car registration comes up, handing the receipt over along with your 'pink slip' vehicle inspection when you go to pay your rego.


CTP insurance provides compensation for other people injured in an accident when you or the person driving your vehicle is the driver at fault.

It covers your passengers and other road users, including pedestrians and cyclists. But it doesn't cover you for personal injury if you're the driver at fault, and it doesn't cover damage to property or other vehicles.

Third-party property
That's where third-party property insurance comes in. Even if you can't afford comprehensive car insurance you should at the very least take out third-party property insurance.

This limited form of insurance doesn't pay for damage to your car – which you may not consider worth insuring – but it will cover you for the damage caused to another vehicle in an accident where you were at fault. Without insurance, you could be facing a damage claim for many thousands of dollars.

In addition, some third-party property insurance policies will pay out something like $3000 for damage to your own car if you're not at fault and the at-fault driver is uninsured, as long as you can identify the driver (always take details at the scene of an accident).

You can also buy third-party fire and theft insurance. This covers you, as it says, for fire and theft in addition to damage to other vehicles and property.

If you've spent upwards of $10,000 on a car, think twice about whether third-party insurance is sufficient. You'll have to pay for the damage to your own car if you're at fault, possibly writing off tens of thousands of dollars if it's wrecked. Comprehensive insurance may be warranted.

Ask yourself: if your car was badly damaged, could you afford the cost of replacing it? If you couldn't, you should consider comprehensive insurance.

Comprehensive insurance covers you for damage to your own car as well as damage to other people's property. It's not cheap, but there's plenty of competition among insurers, so shop around.

If you have a car loan your lender will probably require you to have comprehensive insurance in any case, to protect their interest if the car is stolen or badly damaged.

Gap insurance
You may be offered gap or 'shortfall' insurance when you take out a car loan. If you car is seriously damaged and written off, gap insurance makes up the difference between what your insurance company pays out and what you still owe on the car.

You are not obliged to take the gap insurance a car deal offers you. They may be linked to one particular insurer, which is paying them commission and the policy may not be the best or cheapest. It's in your interest to shop around.

Extended warranties
You may also be offered various forms of mechanical failure insurance, such as the option to extend a new car's warranty beyond the one, two or three warranty it may already come with.

Consider whether the cost is really worth it. What's the likelihood of a relatively new car, or one with low kilometres, suffering an expensive mechanical failure?

Other types of insurance
Some of the major insurers provide cover for transport such as boats and classic cars, but you may be better off going to specialised operators, such as Club Marine Australia and Associated Marine for boats, or Shannons and Unique Car Insurance for cars.

Specialist providers tend to have lower premiums - in the case of cars they may be more willing to allow vintage car owners to retain the wreck of their car should it be written off.

Be aware that marine cover is usually limited to within 200 nautical miles of Australia and ocean racing generally requires a specific policy. Waterskiing also tends to require an additional premium.

The main types of car insurance are:

  • compulsory third party
  • third-party property
  • third-party fire and theft
  • comprehensive
  • gap insurance
  • mechanical failure insurance