CTP, Third Party or Comprehensive: Which Car Insurance Covers Whose Car

A registered car is not an insured car, in the sense that most new owners understand the word. Registration requires compulsory third party insurance, known as CTP, and CTP covers injuries to people caused by the vehicle. It does not pay to repair the vehicle, and it does not pay for damage the vehicle causes to another person’s car, fence or house.

The distinction is the source of an expensive misunderstanding. A driver who believes that registration has insured the car may discover, after a collision, that the repair bills for both vehicles are theirs to meet. This article sets out the four levels of car insurance as Moneysmart, the consumer finance service of the Australian Securities and Investments Commission, describes them. Each level is explained by whose loss it pays for. The article then addresses the valuation choice that most often catches policyholders out, the role of the excess, and the question of when comprehensive cover ceases to be worth its cost. It is general information and not financial advice.

CTP: people, not property

Compulsory third party insurance has a narrow and specific purpose. According to Moneysmart, it covers injuries to people caused by your car. It does not cover damage to cars or other property, whether that property belongs to you or to someone else.

CTP is required in order to register a vehicle. The arrangement for buying it differs between states. In some states, the cost of CTP is included in registration; in others, the owner buys it separately before registering. The registration authority in the owner’s state or territory is the body that sets out which arrangement applies, and an owner who is unsure should confirm it there.

The practical boundary is therefore clear. If a driver causes a collision in which another person is injured, CTP responds to that injury. If the same collision damages two cars, CTP pays for neither of them. Every other form of cover described in this article addresses property, and every one of them is optional.

The same boundary applies when a person drives a vehicle that is not their own. The cover attached to a rental vehicle is a separate question, governed by the hire agreement, and it is addressed in the guide on what to know about hiring a car. This article concerns cover for a car that a person owns.

Third party property damage

Third party property damage insurance is the first level of optional cover. Moneysmart describes it as paying for damage that your car causes to other people’s cars or property. It does not pay for damage to your own car.

The protection it provides is easily underestimated. A minor collision with an expensive vehicle, or with a building, can produce a repair bill well beyond what a driver could meet from savings, and that liability falls on the driver at fault. Third party property damage cover transfers that liability to the insurer, subject to the terms of the policy.

What it does not do is equally important. A driver with this level of cover who causes a collision will have the other party’s damage paid for, and will meet the cost of repairing their own car themselves.

Third party, fire and theft

The second level adds two specific events. Moneysmart describes third party, fire and theft cover as providing the same protection as third party property damage, together with cover for your own car if it is stolen or damaged by fire.

This level suits a particular kind of risk. An owner who is comfortable meeting the cost of their own repairs after a crash, but who could not easily replace the car if it were stolen or burnt, gains protection against those two events without paying for cover on every other kind of damage to the car. The condition to note is that a collision the owner causes still leaves the cost of repairing their own car with them.

Comprehensive

Comprehensive insurance is the broadest level. Moneysmart describes it as covering your car and other people’s cars and property, including where you caused the accident. It also covers theft, fire and weather events. Exclusions apply, and they are set out in each insurer’s Product Disclosure Statement.

The defining feature of comprehensive cover is that it pays for repairs to your own car after a collision for which you are responsible. None of the lower levels does so. An owner who wishes to have their own repairs covered after a crash they cause will therefore usually need comprehensive cover.

Weather is the second point of difference. Of the four levels as Moneysmart describes them, comprehensive is the only one that lists weather events among the risks to the owner’s own car, and that cover remains subject to the policy’s terms and exclusions.

The four levels compared

The table below sets the four levels against the losses a driver most often asks about. The ticks follow Moneysmart’s descriptions of each level. They are a general guide only, since policies differ and each is governed by its own Product Disclosure Statement.

The first row requires a note. Injuries to people are the subject of CTP, which every registered vehicle carries. The three optional levels concern property and are held in addition to CTP, not in place of it. A driver with comprehensive cover therefore holds CTP as well, and the two together address both people and property.

Agreed value or market value

The choice between agreed value and market value is the condition that most often surprises a policyholder at the point of a claim. It determines how much the insurer will pay if the car is written off or stolen and not recovered.

Under an agreed value policy, the insurer and the owner settle on a fixed amount when the policy is taken out. Moneysmart notes that the insurer may reduce this amount each year as the car ages, and that an agreed value policy usually carries a higher premium.

Under a market value policy, the amount is decided by the insurer at the time of the claim, using industry data. Moneysmart is explicit that market value is not what the owner believes the car could be sold for. It is the insurer’s assessment, made when the loss occurs.

Moneysmart illustrates the consequence with an example. In its account, Melanie insured a car worth $18,000 on an agreed value basis. Five years later the car was written off. By then the agreed value had been reduced each year at renewal, and the insurer paid $8,000. The gap between the original value and the payout, $10,000 in that example, was the result of reductions made one renewal at a time.

The lesson concerns attention rather than the choice of basis. An agreed value is fixed only for the term of each policy, and it may be lower at every renewal. An owner who wishes to know what the policy will pay should read the agreed value on each renewal notice, not only on the first.

The excess and the premium

The excess is the amount the policyholder pays towards a claim. Moneysmart explains that the premium depends partly on the excess, and that choosing a higher excess can lower the premium.

The trade has a condition attached. A higher excess reduces the cost of the policy each year, but it increases the amount the owner must find at the moment of a claim. An owner who chooses a high excess to reduce the premium should be able to pay that amount without difficulty, and it is prudent to hold it in reserve. That is one of the purposes of an emergency fund worked out from your own bills.

Moneysmart also advises checking whether an excess always applies. The answer is set out in the Product Disclosure Statement, and it should be confirmed there before the policy is accepted rather than at the time of a claim.

When comprehensive stops making sense

Owners of older cars often ask at what point comprehensive cover ceases to be worth its cost. This article does not offer a single answer, because the answer depends on conditions that differ for each owner. It does set out the comparison that resolves the question.

The first condition is the value of the car. As a car ages, its value falls, and so, under either valuation basis, does the amount the insurer would pay if it were written off. The yearly premium does not necessarily fall at the same rate.

The second condition is the owner’s capacity to replace the car. An owner who could absorb the loss of the car from savings bears a different risk from an owner who depends on the car for work and could not replace it without borrowing.

The comparison, then, is between the yearly premium, the value the policy would pay, and the cost to the owner of losing the car without cover. Where the premium is a substantial fraction of the payout and the owner could replace the car, the case for comprehensive cover weakens. Where the owner could not replace the car, it remains stronger.

Moneysmart describes owners reaching different conclusions on these conditions. One example concerns a driver with a very old car who keeps CTP only, having judged that the car’s value did not justify further cover. Another concerns a driver who moved from comprehensive to third party property cover after a sharp increase in the renewal premium. In each case the owner weighed the premium against the value and their own position.

Two qualifications apply to any move down the ladder. The first is that the value of the owner’s car and the owner’s liability to others are separate questions. Third party property cover responds to damage the owner’s car causes to other people’s cars and property, and the cost of that damage depends on what is struck, not on the age of the car that strikes it. A decision to drop it should be made on that basis, and not only on the falling value of the owner’s own vehicle. The second is that the decision sits within the owner’s wider finances. An owner who is also reviewing a loan on the vehicle may wish to consider insurance alongside the question of whether refinancing a car loan is worth it, since both are ongoing costs of the same car.

Matching the cover to the car

The four levels can be reduced to a short set of questions, each concerned with whose loss is being paid for. CTP addresses injuries to people and is held by every registered vehicle. Third party property damage addresses other people’s property. Third party, fire and theft adds theft of and fire damage to the owner’s car. Comprehensive adds the owner’s own car after a crash they cause, and weather damage.

Before choosing or renewing a policy, the following steps apply.

1. Read the Product Disclosure Statement, including its exclusions, before accepting a policy.
2. Confirm whether the policy is on an agreed value or a market value basis.
3. On an agreed value policy, check the stated value at every renewal, not only the first.
4. Note the excess, whether it always applies, and whether that amount could be paid at short notice.
5. Compare the yearly premium with the value the policy would pay and with the cost of replacing the car without cover.

An owner who has completed these steps will know which losses the policy pays for, which it leaves with them, and whether that balance still suits the car they drive.

Sources: Choosing car insurance, Moneysmart, ASIC (https://moneysmart.gov.au/car-insurance/choosing-car-insurance); Claiming on your car insurance, Moneysmart, ASIC (https://moneysmart.gov.au/car-insurance/claiming-on-your-car-insurance)