When it comes to car insurance, 'premium' has nothing to do with quality ice-cream and 'excess' doesn’t mean sharing too much on Facebook. Our easy guide to some common car insurance terms will help you compare different car insurance policies like a pro.

Insurance premium

Like a gym membership or health premium, your car insurance premium is the amount you pay regularly to keep your car insured. Your premium is based on a combination of factors:
  • Your age: If you’re under 25, you’re considered to be a higher risk so your insurance premium may be higher. Some policies will cover anyone driving your car, others might only cover you for drivers over a certain age.
  • Where you live: Areas with a lower risk of damage or car theft receive a lower premium. Where you park can also be a factor. For example, parking on a street may be a higher risk than in a garage.
  • Your driving and claims record: If you have an incident-free driving history, you’ll probably have a lower insurance premium than someone with a history of claims and incidents. 
  • The make and model of your car: The type of car you have can influence your insurance premium. How your make and model are rated will depend on your insurer and policy.
  • Private or business use: Using your car for work can carry a higher insurance premium because your car is being used more frequently and therefore has a higher risk of being in an accident.

Excess

If you need to make an insurance claim, you’ll probably need to pay an excess.
Your excess amount will be determined by your policy. Some insurers allow you to vary your excess. For example, if you choose a higher excess, your premium may be lower. If you choose a lower excess, you may pay more for your premium but you won’t need to pay as much out of your own pocket if you need to claim.
Other excesses may apply to your policy, such as a young driver or windscreen excess. Details will be in your policy documents.

Sum insured

Your sum insured is the amount you agree with your insurer to cover your car for. The sum insured should be adequate to buy you a replacement car of similar value in the event your car is written off. There are two types of replacement: for agreed value or market value.

Agreed value

The agreed value is the amount of cover for your car that you agree with your insurer when you take out your policy. Not all insurers offer agreed value. Agreed value doesn’t change over the term of your policy, except when it’s time to renew. If you choose to insure your car for the agreed value, this value is usually displayed clearly on your insurance certificate.

Market value

The value of your car will change over time depending on depreciation, the condition of the car and general market conditions. If you choose to insure your car for market value and your car is written off, your insurer will pay you whatever the current market value is on the day it was written off. Note that your insurer may deduct applicable fees like your excess and your full insurance premium for your policy period.

No claim bonus

You might qualify for a “no claim” bonus if you haven’t made a claim on your car insurance, depending on your policy. This means you’re considered lower risk and may be able to pay a lower premium if you don’t make a claim or have any incidents related to your car insurance.

Liability

Liability coverage pays for injuries or property damage you may cause to others, including:
  • Medical expenses, pain and suffering, and lost wages caused by injury, covered under your compulsory third party insurance.
  • Damaged property and cars, covered under third party, third party fire and theft, and comprehensive car insurance.
Defence and court costs will be covered under both types of liability cover.

Policy documents

Documents relating to your insurance, including your Product Disclosure Statement (PDS), Premium, Excess and Discount Guide (PEDG) and policy schedule are your policy documents.
  • PDS: Outlines the features and benefits of your insurance and what’s not included.
  • PEDG: Gives additional information about discounts, excesses and how your premium is calculated.
  • Policy schedule: Provides specific details of your policy, including your excess and your sum insured amount.
Always read the PDS and PEDG carefully before you commit to a policy, and ask your insurer if there’s anything you’re not sure about.

Features and optional benefits

Each policy differs in what it offers as standard features. You can often choose to pay extra to add optional cover to your policy. Features (standard or optional) may include:
  • Hire car after accident: If your car is being repaired, this cover provides you with a hire car as part of your policy. 
  • Roadside assistance cover: If your car breaks down, roadside assistance will help you get back on the road.
  • Uninsured motorist: If you’re in a car accident caused by a driver without liability insurance, this option will cover damage to your car if you provide the driver’s full details.
  • Windscreen cover: In most cases, you need to pay an excess for windscreen repairs or replacement. For an extra cost, windscreen cover removes that excess from your policy.
It’s important to understand what you’re signing up for, so always check with your insurer first if there’s anything you don’t understand. To start exploring your options, read our Quick guide to car insurance in WA.

This document is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice. It does not cover everything that may be relevant to you and does not take into account your particular circumstances. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you.