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What is car insurance? A complete beginner’s guide
Car insurance can be one of the most important protections you can put in place as a driver, yet it's often misunderstood by new motorists or first-time car owners.
Car insurance is a financial product designed to help protect drivers from the costs associated with accidents, theft, and other unexpected events involving their vehicles. It can provide peace of mind with cover options for repair or replacement costs, liability for damage to other people's property, and sometimes additional benefits depending on the policy chosen.
Whether you're buying your first vehicle, upgrading to a newer model, or simply reviewing your cover, understanding what car insurance is and how it works can help you make informed decisions and avoid costly surprises.
This beginner's guide explains what car insurance is, why it matters, the different types of car insurance available in Australia, and how to choose a policy that suits your needs.
What is car insurance?
Simple definition of car insurance
Car insurance is a financial product designed to help protect you against the costs associated with accidents, damage, theft, or liability involving your vehicle.
In exchange for a premium, which is usually paid monthly or annually, an insurer may cover potential costs following an insured event such as accidents. Without insurance, these costs would generally need to be paid out of your own pocket, which can be financially devastating following a serious accident.
Why car insurance is important
Car accidents can happen at any time, even to careful and experienced drivers. Repairs to vehicles and legal liabilities can quickly add up, particularly if multiple vehicles or expensive property are involved.
Car insurance helps manage these risks by providing cover when insured events occur. It can also offer peace of mind, knowing that you have chosen protection against large, unplanned expenses that could otherwise place strain on your household budget.
For Australian drivers, car insurance is especially important given the high cost of vehicle repairs, the increasing value of cars on the road, and the potential legal consequences of causing damage to others.
Is car insurance compulsory in Australia?
In Australia, all registered vehicles must have Compulsory Third Party (CTP) insurance, also known as a green slip in some states. CTP insurance covers compensation for injuries or death caused to other people in a motor vehicle accident. It does not cover damage to vehicles or property.
Other types of car insurance, such as Third Party Property Damage, Third Party Fire and Theft, and Comprehensive Car Insurance, are optional. While not legally required, these policies can provide financial protection for drivers and vehicle owners.
RACV Car Insurance can help provide peace of mind from costs associated with accidents, theft, or certain other unexpected events.
Types of car insurance explained
Understanding the different types of car insurance available in Australia is key to choosing the right level of cover.
Compulsory Third Party (CTP) insurance
In Australia, it's illegal to drive a car on public roads without Compulsory Third Party (CTP) insurance. CTP covers your liability for injuries caused to other people in a motor vehicle accident where you are at fault.
In Victoria, CTP is issued by the Transport Accident Commission (TAC) as part of a car's annual registration fee. Driving without CTP can result in severe penalties, including fines and loss of licence.
CTP insurance does not cover damage to vehicles, buildings, fences, or other property. It also does not cover theft or fire.
Third Party Property Damage car insurance
Third Party Property Damage is basic cover for unintentional collision damage to other people's property (such as their vehicle, home, or business). It does not cover damage to your own car.
This type of policy is often considered a minimum level of optional car insurance, as it can help protect you from significant financial liability if you cause an accident involving another vehicle.
A key benefit of having RACV Third Party Property Damage is up to $5,000 in limited cover for damage to your vehicle if you're not at fault in the collision, the other driver is uninsured, and you can provide their details. Not all car insurers offer this feature with third-party property damage policies.
Third Party Fire and Theft car insurance
Third Party Fire and Theft insurance offers all the benefits of Third Party Property Damage cover, with additional protection if your car is stolen or damaged by fire.
It's a popular option for owners of older or lower-value vehicles who want some protection for their own car without the higher cost of comprehensive insurance. But it's important to be aware that the coverage is limited, and you could face considerable out of pocket expenses for repairs or replacement of your car.
With RACV Third Party Fire and Theft, you're covered for up to $10,000 if your car is stolen or damaged by a fire.
Comprehensive car insurance
Comprehensive car insurance usually offers the highest level of cover. It typically provides cover for damage to your own car and other people's property, as well as protection against theft, fire, vandalism, weather events, and accidents where you are at fault.
Comprehensive policies often include additional features, such as hire car cover, windscreen cover with no excess or pick your own licensed repairer.
With RACV Comprehensive Car Insurance, regardless of who is at fault, you and anyone permitted to drive your vehicle will be covered for collision damage to your vehicle and other people's property.*
RACV Complete Care® Car Insurance has all the benefits of RACV Comprehensive Insurance, plus extra inclusions such as a hire car for any insured incident, excess-free windscreen, sunroof and window glass repairs, and a higher cover limit for emergency transport and accommodation if your car is undriveable, and the incident was more than 100km from home in Australia.**
Comprehensive car insurance for EVs
If you own an electric vehicle or plug-in hybrid, RACV Comprehensive Car Insurance and RACV Complete Care® Car Insurance will cover the cables and adaptors that come with the car. You will also have access to RACV's EV and hybrid-qualified partner repair network, and the chance to save on public charging at participating Chargefox stations.+
Car insurance can help cover costs associated with collisions.
How much does car insurance cost?
Car insurance costs in Victoria vary based on the type of coverage you choose.
Your premium is the cost you pay to keep your insurance policy active, which can usually be paid monthly or annually.
Your excess is the amount you pay towards making a claim under your policy, and can generally be adjusted based on excess options available. Make sure that you are able to comfortably pay the excess you choose in the case of an incident.
How to choose the right car insurance policy
Choosing the right car insurance policy depends on your personal circumstances, including the value of your car, your budget, and your risk tolerance. Those with new or high-value vehicles may look for higher protection with comprehensive insurance, while older car owners may consider third party options adequate for their needs.
It's also worth considering how you use your car, whether you need extras such as a hire car after an accident, and how important flexibility and service are to you.
Comparing policies, rather than focusing solely on price, can help ensure you are adequately covered when it matters most.
Car insurance can also help in the event of a theft. Image: Getty
Frequently asked questions about car insurance
Do I need car insurance if my car is old?
Even if your car is older or has a low market value, third party property damage insurance can still be important. Repairing someone else's vehicle or property can be far more expensive than repairing your own.
Can I drive someone else's car with my insurance?
No. Car insurance policies cover the specific vehicle insured.
Most car insurance policies only cover drivers listed on the policy. Before driving someone else's car, double check whether you are covered or not.
Does car insurance cover natural disasters?
Many comprehensive policies offer cover for damage caused by storms, hail, floods, and bushfires, which are relevant risks in Australia. Coverage varies, so it's important to check your policy details.
What does car insurance not cover?
Car insurance does not cover every situation, and limits and exclusions and policy terms apply depending on the type of policy and insurer. Most car insurance policies in Australia don't cover damage caused while driving under the influence of alcohol or drugs, using your vehicle for illegal activities, or driving without a valid licence.
Wear and tear, mechanical breakdowns, and routine maintenance issues are also generally excluded from cover. In addition, policies may not cover damage caused by unapproved modifications or accessories unless they are listed on the policy.
Can I drive without car insurance?
In Victoria, you cannot legally drive a registered vehicle without Compulsory Third Party (CTP) insurance. CTP insurance is mandatory and is included as part of vehicle registration in every state and territory. It covers injuries or death caused to other people in a motor vehicle accident.
However, optional types of car insurance, such as third party property damage or comprehensive insurance, are not legally required. While it's possible to drive without these policies, doing so exposes you to significant financial risk.
What happens if I get into an accident without car insurance?
If you're involved in an accident without optional car insurance, you may be personally responsible for paying the full cost of repairs to other vehicles or property if you are at fault. These costs can be substantial, particularly if multiple vehicles or expensive property are involved.
Without comprehensive insurance, you will also need to cover the cost of repairing or replacing your own vehicle. In serious cases, unpaid repair costs or legal claims could lead to long-term financial strain.
Having the appropriate level of car insurance can help protect you from these unexpected expenses and provide support when accidents occur.
Make sure to take photos for evidence when submitting a car insurance claim. Image: Getty
How to use car insurance
1. Choose a policy
Drivers select a policy based on their needs, budget, and the value of their vehicle. It's important to review the Product Disclosure Statement (PDS) and understand what is covered, any exclusions, and the amount of excess payable.
2. Pay premiums
Your premium is the cost you pay to keep your insurance policy active, which can usually be paid monthly or annually.
Your excess is the amount you pay towards making a claim under your policy and can generally be adjusted based on excess options available. Make sure that you are able to comfortably pay the excess you choose in the case of an incident.
3. Make a claim (if necessary)
If you are involved in an accident or your car is damaged or stolen, you will need to lodge a claim with your insurer as soon as possible. This typically involves providing details of the incident, photographs, and any relevant police reports.
Understanding your policy conditions in advance can make the claims process smoother and reduce stress during an already difficult situation.
4. Have your claim assessed
Your claim will be assessed and coverage determined based on the nature of the event and the type of policy. After any exces is paid, your insurer may arrange repairs.
Why choose RACV Car Insurance?
RACV Insurance, as distributor, has a range of car insurance policies that are designed to suit different drivers, giving you flexibility, peace of mind and tailored protection. With options ranging from basic third party cover to premium Complete Care®, RACV Insurance aims to meet the diverse needs of its members. Features such as optional extras, dedicated support and a straightforward claims process make RACV Insurance a trusted choice for car insurance.
The information provided is general advice only. Before making any decisions please consider your own circumstances and the Product Disclosure Statement and Target Market Determinations. For copies, visit racv.com.au. As distributor, RACV Insurance Services Pty Ltd AFS Licence No. 230039 receives commission for each policy sold or renewed. Product(s) issued by Insurance Manufacturers of Australia Pty Ltd ABN 93 004 208 084 AFS Licence No. 227678.
* Provided they meet policy conditions and have your permission to drive your vehicle. Additional excess applies to drivers under 25 or with less than 2 years' driving experience.
** No limit applies after a not-at-fault collision. Up to $100/day until claim is settled as a result of a theft, attempted theft or any other incident.
+ The Offer: 10% off the Retail Charging Price at all Chargefox ultra-rapid sites. The Offer only applies to the Retail Charging Price. Other fees and charges may apply. The Offer is only available at participating Chargefox ultra-rapid sites. For participating locations please download the Chargefox app. Where an RACV Member is also entitled to a discount via a vehicle manufacturer partnership with Chargefox (see here), they will receive a minimum of 50% off the Retail Charging Price. The Offer can only be activated by current RACV Members who have completed the following steps prior to charging their vehicle: (a) Downloaded or updated the Chargefox app (on a compatible smartphone). (b) Logged into the Chargefox app and added their credit card information and a valid RACV Membership number in their profile. Discounts cannot be applied after a charge session has begun or has been completed. The Offer may be withdrawn at any time and without notice. RACV accepts no responsibility in respect to any damage or loss to a member caused through their use of, or lack of availability of Chargefox equipment to charge their vehicle. Members should review the Chargefox terms and conditions and privacy policy. These terms and conditions are subject to change from time to time. Please read the latest RACV Member benefits terms and conditions. View a copy of Chargefox’s full terms and conditions.
