Insured Without Paying A Bomb

Sun Herald

Sunday September 9, 2007

Janet de Silva

Janet de Silva on curbing the excesses of youth.

AH, the thrill of turning 18 and qualifying for a driver's licence. But there's nothing thrilling about being a P-plater and having to cough up for car insurance. In what amounts to a double blow, young drivers not only face prohibitive insurance premiums that can be as high as $5000, they can also be slugged with crippling excess costs if they have to make a claim.

In the UK, car insurance is now so costly for the under 25s that some providers are offering discounts for young drivers who agree to keep their cars off the road at night and limit the number of passengers. Such initiatives are yet to hit our shores, but there are still ways for P-platers to reduce the car insurance burden.

WHAT LEVEL OF COVER?

Third party insurance is compulsory for all drivers, but third party property, which pays for damage to the other car regardless of who is at fault, is widely considered the minimum insurance young drivers should take. The next level of cover is comprehensive insurance. This is the most expensive (at least twice the cost of third party property) as it pays for damage to the driver's own car as well as offering protection from things such as fire and theft.

WAYS TO REDUCE YOUR PREMIUM

Consumer finance comparison site RateCity commissioned Cannex to survey 23 car insurers this year. The results showed that young drivers in NSW had the potential to save more than half of their car insurance premiums by shopping around, while at the extreme end of the scale, they could actually save about $1800.

The first step to finding the best deal is to obtain online quotes from each insurance company website in your state (see list below). But be careful. Sometimes the cheapest cover comes with an exorbitant excess.

"It's easy to fall into the trap of thinking that by lowering the premium you are doing yourself a favour, but if your excess becomes too high it can be disastrous when you have to make a claim," Cannex finance analyst Lauren Newlands says.

Claims handling is another important issue. "Sometimes it's worth paying a bit extra in premiums to get your car back on the road quickly," Newlands says.

YOUR PARENTS' POLICY

One way around the under-25 insurance hurdle is for drivers to take cover under their parents' policy. The cheapest way to do this is for parents to nominate their son or daughter as an irregular driver.

Under these circumstances, the parents' premiums typically increase only marginally, although the excess payable for any claim relating to the young driver can jump to $2000 or higher. But as Andrew O'Hara from Just Car Insurance warns, this can be a false economy in the long term if the parents' policy does not allow young drivers to start accumulating a driver history rating or no-claim bonus, leaving them exposed to high premiums when they eventually go it alone.

But there are some family discount packages that provide ratings for young drivers and offer considerable savings of $2000 or more.

GIO's family discount package allows parents with a clear driving record to help their children under 26 to obtain more affordable comprehensive car insurance without risk to their own policy. Under the offer, young adults can receive a discount of up to 60 per cent off GIO's base rate.

CHOOSE YOUR CAR WISELY

The make and model of your car, what your car is used for and whether you have car finance can have a huge bearing on the cost of car insurance. Not only do car insurance premiums skyrocket if you drive a high-performance or modified car, many insurers simply don't want your business.

Just Car Insurance specialises in insurance to young drivers with prestige, modified or high-performance vehicles, and O'Hara estimates that as many as 450,000 Australians fall into this category. Cars used for business may also attract a higher premium.

FULL DISCLOSURE

The Insurance Ombudsman, Sam Parrino, says non-disclosure is a problem with the under-25 age group.

"These drivers need to ensure that their previous driving and claims history is fully disclosed and that they have honestly answered any other questions asked by the insurer," Parrino says.

"Similarly they need to ensure that, if their vehicle has been modified in any way, that the insurer is aware of the modification."

SHOP AROUND

To illustrate the importance of shopping around for car insurance and exploring family discount options, we randomly surveyed five online insurers using the case study of an 18-year-old female driver of a standard 2000 Toyota Corolla Ascent 4 cylinder sedan auto (no finance, private use). The results of this small survey reveal a premium price difference of more than $2000. Some of these online quotes include a 15 per cent discount.

JCI $1987 (excess $1150)

RACV $2413 ($900)

AAMI $2419 ($800)

GIO $3354 ($1000)

GIO (family discount) .. $1320 ($500)

Allianz $4144 ($850)

© 2007 Sun Herald

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