How much do you know about car insurance in Australia? If you are like most drivers, you are acutely aware that you are required to have compulsory third-party cover in order to register your vehicle. That may be the extent of your knowledge. As an industry leader in fast and secure car insurance quotes, we get a lot of questions from customers looking to understand what it is they are purchasing.

From our experience, the two most frequently asked car insurance questions are:

  • How are insurance premiums calculated?
  • How can I save money on voluntary car insurance?

We will seek to answer both questions in this post. However, our answers are by no means exhaustive. Car insurance is a very personal thing that is largely based on individual circumstances. It would help to learn as much as you can about car insurance law to ensure you adequately protect yourself as a driver and car owner.

How Are Insurance Premiums Calculated?

The concept of insurance is pretty uniform no matter where you purchase it or what it covers. When you buy a policy, you are paying the insurance company a certain amount of money in exchange for protecting you against significant financial loss in the event of a claim. The insurance company is willing to take the risk because they can use the money you pay in premiums to invest. The idea is to make a profit from those investments that far outpaces whatever the company pays out in annual claims.

With this understanding, it should be clear that insurance premiums are calculated based on the amount of risk the driver poses to the insurance company. The greater the risk, the higher the premiums. Insurance companies employ an army of actuaries who use statistical data to determine how much risk a driver poses. They look at a number of things, including:

  • the age and sex of the driver
  • individual driving history
  • the make, model and year of the car
  • where the car is parked at night
  • any modifications or improvements made to the car
  • how the car is primarily used (e.g., commuting to work, pleasure, or business).

All of the factors are combined to create a mathematical score representing risk. That score determines what you will pay in premiums.

How Can I Save Money on Voluntary Car Insurance?

You can't really save significant money on green slip insurance because it is mandatory and does not rely as much on the above factors. But there are things you can do to reduce what you pay for voluntary cover like comprehensive and third party fire and theft. The most important thing is to maintain a clean driving record – meaning you are avoiding accidents and violations. Understand that your driving history is the single most important factor to influence your premiums.

You can also save money by:

  • parking your car in a safe and secure place at night
  • equipping your car with safety and anti-theft equipment
  • limiting the number of additional drivers you nominate on your policy
  • choosing market value instead of agreed value
  • accepting a higher excess
  • taking a driver safety course.

You should also consider asking your car insurance company about discounts when you renew. Discounts are tools used by providers to encourage new customers to purchase from them. The thing is, most people are eligible for discounts they are unaware of. Ask about any and all discounts you are entitled to. There is no point in paying more than you have to.